What is the UK Buy to Let?
UK buy-to-let economics changed fundamentally with Section 24. Mortgage interest is no longer deductible from rental income; instead you receive a 20% tax credit on the interest. Higher-rate landlords therefore pay tax on income they never actually keep.
Combined with the 5% SDLT surcharge, this has squeezed leveraged higher-rate landlords hard, while cash buyers and basic-rate taxpayers are far less affected.
Formula & worked example
Tax = Taxable profit × your rate − (interest × 20%)
Net profit = Rent − costs − interest − tax
Worked example: a £220,000 property with £55,000 deposit, £165,000 mortgage at 5.25% (£8,663 interest), £13,800 rent and £2,400 costs. Gross yield looks healthy at 6.27%. But under Section 24 the taxable profit is £11,400 with no deduction for the £8,663 of interest; tax at 40% is £4,560, less a £1,733 credit = £2,828. After interest and tax the landlord is left with −£90 — an actual loss, despite the attractive headline yield. That gap is precisely what Section 24 did to leveraged higher-rate landlords.
How to use this uk buy to let calculator
- Enter the property price and your deposit — buy-to-let usually needs 25%.
- Buy-to-let rates are typically 1–1.5% above residential.
- Include realistic costs: letting agent (10–15%), repairs, insurance, void periods.
- Your income tax rate drives the Section 24 impact substantially.
Smart tips
- Lenders require rent to cover 125–145% of mortgage interest at a stress-tested rate, often 5.5%.
- Section 24 hits higher-rate taxpayers hardest; basic-rate landlords are largely unaffected.
- Holding property in a limited company allows full interest deduction, but brings Corporation Tax and extra admin.
- Budget for 1–2 void months a year — an always-let assumption is unrealistic.
- The 5% SDLT surcharge on additional properties is a substantial upfront cost to factor into returns.
Frequently asked questions
What is a good rental yield in the UK?
Gross yields of 5–8% are typical, higher in the North and lower in London. Net yield after costs and tax is usually 2–4 percentage points lower.
What is Section 24?
A rule removing mortgage interest as a deductible expense for individual landlords, replacing it with a 20% basic-rate tax credit.
Should I buy property through a limited company?
It restores full interest deduction and may suit higher-rate landlords with several properties, but adds Corporation Tax, extra costs and higher mortgage rates.
How much deposit do I need for buy-to-let?
Typically 25%, though some lenders accept 20%. Rates improve substantially at 40% deposit.
Want the theory behind the numbers? Read our UK property guides on the Money Blog.
Written by Gurjeet Singh, Sharpen Solutions. Last reviewed 15 Oct 2026. Sources: GOV.UK — Tax relief for residential landlords: the 20% finance-cost credit. How we check these numbers.