“Audrey, can you give me an honest answer? Is it actually worth keeping my rental flat? I receive £1,250 every month, but I don’t feel any better off. By the time I’ve paid the mortgage, the service charge and the tax, there’s hardly anything left. Then I need an electrical safety certificate, an accountant, someone to replace a broken lock and I feel as though I’m paying for it out of my teaching salary. Am I doing something wrong? And how will this Budget affect me?”
Imagine receiving that call from a teacher who has spent her working life in education. She is now a headteacher, seven years away from retirement.
The flat she rents out is her former home. She kept it hoping it would provide some extra security later in life. Now she is questioning whether holding on to it is helping her.
As an accountant and a property investor myself, I understand her concern. Before answering let’s look at what she actually keeps.
What does £1,250 a month in rent really leave her?
Our teacher earns £75,000 a year from her employment. Her flat is worth approximately £270,000 with an outstanding mortgage of £165,000 at an interest rate of 5%.
The annual rent is £15,000 (she receives £1,250 a month from her current tenants)
The mortgage interest alone is £8,250 a year (£687.50 a month).
That leaves £562.50 a month before tax and any other property expenses.
Already, the £1,250 arriving in her bank account looks quite different.
For this example, I am assuming an interest-only mortgage, a full year of rent and personal ownership of the flat.
How will Budget 2026 affect her rental income tax?
The government has announced separate property income tax rates of 24%, 44% and 49% from 6 April 2027, subject to legislation. For our teacher in England, her £75,000 salary means the rental profit falls within the 44% higher-rate band, assuming no other material income or reliefs.
But the tax rate is only part of the calculation.
Individual residential landlords cannot deduct their mortgage interest in full before calculating taxable rental profit. Instead, they receive a separate tax reduction for qualifying finance costs. That relief follows the property basic rate, so this example uses 24% mortgage interest relief under the announced rates.
This is where many people understandably become confused. They look at what is left after paying the mortgage and assume that is the amount on which they will pay tax. The calculation works differently.
On the proposed April 2027 rates and assuming the full residential finance-cost tax reduction is available, £15,000 rental income would produce a £6,600 property income tax calculation before finance-cost relief, with £1,980 of tax reduction for the £8,250 mortgage interest. Tax attributable to the rental income would be £4,620 before other deductible running costs. That would leave £2,130 after mortgage interest and tax, before service charges and repairs.
That leaves £177.50 a month before paying any other property bills.
This is the tax attributable to the letting, separate from the tax already paid on her teaching salary.
What about service charges, repairs and accountancy fees?
A flat comes with costs beyond the mortgage: service charges, insurance, letting fees, safety checks, accountancy fees and repairs all need to be considered. Qualifying day-to-day letting expenses can reduce taxable rental profit, but she still has to find the money to pay them.
Let us assume she incurs £3,000 a year in fully deductible running costs. This is an illustration; we would need her actual bills to assess her own position.
Her taxable rental profit before mortgage interest relief becomes £12,000. The tax is £5,280, reduced by £1,980 of mortgage interest relief, leaving a rental tax bill of £3,300.
If the landlord also has £3,000 of wholly allowable annual running costs, taxable property income in this simplified illustration falls to £12,000. At the proposed 44% higher property rate, the charge would be £5,280 before a £1,980 finance-cost reduction, resulting in an illustrative £3,300 tax charge. The annual cash remaining after running costs, mortgage interest and this tax would be £450, equivalent to £37.50 per month. Real calculations can differ because of tax bands, allowances, other income and eligibility for relief.
£37.50 a month.
That is the amount she has left to keep under these assumptions.
“So am I doing something wrong?”
My answer would be:
“You may be doing everything correctly. The figures can still leave you with very little or nothing at all.”
If she is also repaying mortgage capital, those repayments come out on top. They reduce her debt and build her equity, but they do not reduce her taxable rental profit.
She could receive £15,000 in rent over the year and still need money from her teaching salary to pay the flat’s bills.
That is the harsh reality behind the rental income figure.
Is the latest Budget responsible for all of this?
We need to be fair about that.
Before other running costs, the current 40% tax rate and 20% mortgage interest relief leave her £2,400 a year. The announced rates would leave her £2,130.
On the simplified example before other running costs, the proposed April 2027 rates leave £270 less per year than the 2026/27 rules. That comparison reflects the combined policy changes announced in 2025 and 2026, not just the additional increase announced in October 2026.
The latest increase reduces a margin that was already small. Mortgage interest restrictions, borrowing costs and the expense of maintaining a rental home were already affecting what she could keep.
For someone with little spare cash from the property of approx. £40 (out of £1,250), another £22.50 a month matters.
Should she keep the rental flat or sell it?
I would not tell her to sell simply because the monthly income is disappointing. Equally, I would not tell her to keep it just because property has served her well in the past.
She has approximately £105,000 of equity, before selling costs and any tax on a disposal. That is an important part of her financial position.
But she also needs to decide what she wants that money to do for her, particularly with retirement approaching.
These are the questions I would work through with her:
What does the flat actually cost each year? Use the mortgage statements and real bills, including occasional expenses.
What happens when the mortgage deal ends? Calculate whether the property remains affordable at the rate she may then pay.
Can she comfortably fund a repair or a period without rent? A property needs a cash reserve.
What does she need in retirement? Regular spending money, long-term growth and a property to pass on are different objectives.
What would keeping or selling leave her with? Compare the figures after costs and tax, alongside the practical responsibilities of ownership.
Changing the ownership or moving a property into a company also needs a separate review of the costs and tax consequences. It should never be treated as an automatic solution.
Your property should support your plans
What concerns me is how easily someone’s circumstances disappear behind the word “landlord”. Here is a teacher who has worked for decades, kept one former home and hoped it would help support her retirement.
She deserves a clear explanation of what that property provides today, what it might provide later and what it could ask of her along the way.
At Business Help UK Group, these are the conversations I believe we should be having with clients. Preparing the tax return matters. Helping someone use those figures to make a decision about their life matters too.
If your rent arrives every month but you never seem to have anything left, it is time to review the figures. You should know whether your property is putting money into your pocket or whether your wages are keeping it going.
This article uses an illustrative scenario. Calculations assume an England taxpayer, personal ownership, fully qualifying mortgage interest, full occupancy and no other income or reliefs affecting the result. The £3,000 running-cost figure is an example. Proposed rates are due to apply from 6 April 2027, subject to legislation.
Rates discussed for April 2027 reflect government proposals as published in October 2026 and remain subject to legislation. All figures are illustrative and should be checked against the landlord’s own income, borrowing and actual property costs.
