Compare Tax Years Calculator: How We Calculate

Published by PropMatch.ukon27 April 2026•8 min read

CalculatorsTaxLimited Companies

Compare Tax Years Calculator: How We Calculate

Tax year coverage: 2025/26 – 2027/28

Estimates only — not tax, legal, or financial advice. Full disclaimer below.

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What This Calculator Computes

This calculator shows how your estimated UK property tax changes across three tax years using the same inputs. By holding income and expenses constant, it isolates the effect of tax policy changes — specifically those announced in Budget 2025.

It compares:

• 2025/26 — baseline year (pre-Budget rates)
• 2026/27 — dividend tax rates increase by 2 percentage points
• 2027/28 — income tax on rental income increases by 2 percentage points

It models: Progressive income tax on rental profits, corporation tax with marginal relief, Section 24 mortgage interest tax credit, dividend tax with allowance, personal allowance tapering, and year-on-year deltas with primary driver detection.

It does not model: Scottish income tax rates, capital gains tax, multi-entity group reliefs, salary optimisation, or pension interactions.

For step-by-step usage instructions, see the Compare Tax Years Calculator Manual. To use the calculator directly, go to the Compare Tax Years Calculator.

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How We Calculate

Step 1 — Calculate taxable rental profit

The treatment differs by ownership:

• Individual: Taxable Rental Profit = Gross Rental Income − Expenses

  Mortgage interest is not deducted here (Section 24 restriction). A basic-rate tax credit is applied in Step 2.

• Company: Taxable Rental Profit = Gross Rental Income − Expenses − Mortgage Interest

  Mortgage interest is deductible as a financing cost before corporation tax.

Step 2 — Apply tax (individual ownership)

1. Income tax — Rental profit is stacked on top of other personal income and taxed progressively. The calculator computes tax on (other income + rental profit) minus tax on (other income alone) to determine the marginal tax attributable to rental income.
2. Rental income surcharge (2027-28 only) — A +2pp surcharge applies to the taxable portion of rental income. The surcharge is calculated after personal allowance allocation: other income absorbs allowance first, then any remaining allowance shelters rental income. The surcharge applies at a flat 2% to all rental income subject to tax, regardless of which band it falls in.
3. Mortgage interest tax credit — Section 24 restricts relief to a basic-rate credit (20% to 2026-27; 22% from 2027-28 per Budget 2025): MITC = min(Mortgage Interest × basic rate, Taxable Rental Profit, Income Tax Liability).
4. Total tax = Income Tax + Surcharge − MITC.

Step 3 — Apply tax (company ownership)

1. Corporation tax — Progressive with marginal relief. Small profits rate (19%) applies below £50,000; main rate (25%) above £250,000; marginal relief applies between these thresholds.
2. Dividend tax (if dividends entered) — After a £500 tax-free allowance, dividends are taxed progressively. Personal allowance applies to dividends when no other personal income is declared. Dividend rates increase by 2pp from 2026-27 onward.
3. Total tax = Corporation Tax + Dividend Tax.

Step 4 — Calculate effective tax rates

Two rates are computed for each year:

• Overall effective rate = Total Tax ÷ Total Taxable Income
• Property effective rate = Tax on Rental Income ÷ Gross Rental Income

For individuals, "tax on rental income" is the marginal income tax attributable to rental profit (including surcharge) minus MITC. For companies, it is corporation tax only — dividend tax is excluded from the property rate.

Step 5 — Repeat for all three tax years

Steps 1–4 run identically for 2025/26, 2026/27, and 2027/28 using the same inputs. Only the tax rates and surcharge rules change.

Step 6 — Compute year-on-year deltas

Using 2025/26 as the baseline:

• Absolute change = Comparison Year Tax − Baseline Tax
• Percentage change (individuals) = (Comparison Tax on Rental − Baseline Tax on Rental) ÷ Baseline Tax on Rental
• Percentage change (companies) = Absolute Change ÷ Baseline Total Tax
• Primary driver = Tax component with the largest absolute change (Income Tax, MITC, Corporation Tax, or Dividend Tax)

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These examples can be reproduced using the calculator with the same inputs.

Worked Examples

Example 1 — Individual ownership with mortgage interest

An individual landlord with rental income and a buy-to-let mortgage, no other personal income.

Inputs:

Calculation (2025/26 baseline):

1. Taxable rental profit = £50,000 − £5,000 = £45,000 (mortgage excluded per S24)
2. Income tax (progressive):
   • Personal allowance: £12,570
   • Taxable income: £45,000 − £12,570 = £32,430
   • All within basic rate band (ceiling £50,270)
   • Income tax = £32,430 × 20% = £6,486
3. Rental surcharge = £0 (does not apply until 2027-28)
4. MITC = min(£20,000 × 20%, £45,000, £6,486) = min(£4,000, £45,000, £6,486) = £4,000
5. Total tax = £6,486 − £4,000 = £2,486
6. Overall effective rate = £2,486 ÷ £45,000 = 5.52%
7. Property effective rate = £2,486 ÷ £50,000 = 4.97%

2026/27: No income tax rate changes for individuals without dividends. Total tax = £2,486. Delta = £0.

2027/28:

1. Income tax (pre-surcharge, using 2026-27 rates) = £6,486
2. Rental surcharge: PA (£12,570) fully available for rental → rental subject to tax = £32,430 → surcharge = £32,430 × 2% = £648.60
3. Income tax total = £6,486 + £648.60 = £7,134.60
4. MITC = min(£4,000, £45,000, £7,134.60) = £4,000
5. Total tax = £7,134.60 − £4,000 = £3,134.60
6. Delta vs baseline = +£648.60 | Percentage change = +26.1% | Primary driver: Income Tax

Result: The Budget 2025 rental income surcharge adds £648.60/year to this investor's tax from 2027/28. Dividend-only changes in 2026/27 have no effect for individuals without dividends.

Audit test: CTY-METH-001

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Example 2 — Company ownership with dividends

A limited company with rental profits in the marginal relief band, extracting £50,000 as dividends. No other personal income declared.

Inputs:

Calculation (2025/26 baseline):

1. Taxable rental profit = £100,000 − £20,000 − £10,000 = £70,000 (mortgage deductible for companies)
2. Corporation tax (marginal relief band):
   • Profit £70,000 falls between £50,000 and £250,000
   • Main rate: £70,000 × 25% = £17,500
   • Marginal relief: (£250,000 − £70,000) × 3/200 = £180,000 × 0.015 = £2,700
   • Corporation tax = £17,500 − £2,700 = £14,800
3. Dividend tax (progressive):
   • Personal allowance: £12,570 (applied to dividends — no other income declared)
   • Dividend allowance: £500
   • Taxable dividends: £50,000 − £12,570 − £500 = £36,930
   • All within basic rate band: £36,930 × 8.75% = £3,231.38
4. Total tax = £14,800 + £3,231.38 = £18,031.38
5. Overall effective rate = £18,031.38 ÷ £70,000 = 25.76%
6. Property effective rate = £14,800 ÷ £100,000 = 14.80%

2026/27:

1. Corporation tax = £14,800 (unchanged)
2. Dividend tax (basic rate +2pp): £36,930 × 10.75% = £3,969.98
3. Total tax = £14,800 + £3,969.98 = £18,769.98
4. Delta vs baseline = +£738.60 | Percentage change = +4.1% | Primary driver: Dividend Tax

2027/28:

1. Corporation tax = £14,800 (unchanged)
2. Dividend tax = £3,969.98 (rates maintained at 2026-27 levels)
3. Total tax = £18,769.98
4. Delta vs baseline = +£738.60 | Primary driver: Dividend Tax

Result: The Budget 2025 dividend tax increase adds £738.60/year from 2026/27. Corporation tax and rental income tax are unaffected. The 2027-28 rental income surcharge does not apply to companies.

Audit test: CTY-METH-002

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Tax Constants and Rates

All constants are sourced from HMRC guidance and Finance Act 2025, as implemented in the calculator.

Income Tax (Individuals)

*The 2027/28 income tax rates in this calculator apply only to rental income. The calculator uses 2026-27 base rates and adds a separate +2pp rental-only surcharge, rather than applying globally uplifted rates — this ensures other personal income is not incorrectly surcharged.

Corporation Tax

Dividend Tax

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Assumptions and Limitations

Assumptions

Inputs are held constant across all three years. The calculator compares tax years using identical income, expenses, and mortgage figures. Impact: isolates the effect of rate changes but does not account for real-world income growth or changing mortgage rates. When this matters: if your rental income or costs are likely to change materially between years.

Personal allowance is applied to other income first. For individuals, the personal allowance (£12,570) is consumed by non-property income before rental income is taxed. Impact: may overstate income tax if your non-property income is below the personal allowance. When this matters: if you have little or no other income and your allowance would partially shelter rental income.

Director salary is not modelled for companies. For company ownership, dividends are taxed assuming no other personal income — the personal allowance (£12,570) is applied to dividends. Impact: may understate dividend tax if you take a director's salary that absorbs the personal allowance. When this matters: most company directors take a salary at or near the personal allowance threshold, which would increase dividend tax.

All properties are in England or Wales. Scottish income tax rates are not modelled. Impact: results will be incorrect for Scottish taxpayers. When this matters: if you are registered as a Scottish taxpayer with HMRC.

Corporation tax is calculated on a single-company basis. Associated companies, group reliefs, and apportioned thresholds are not modelled. Impact: may understate corporation tax if your SPV has associated companies sharing the small profits limit. When this matters: investors with multiple SPVs.

Dividends are user-entered, not derived from profit. The calculator uses the dividend amount you enter directly — it does not compute how much profit is available for extraction. Impact: you can model dividends that exceed after-tax profit. When this matters: if you enter a dividend amount exceeding the company's distributable reserves.

The rental income surcharge is a flat 2% on all taxable rental income. The surcharge does not vary by band — it applies uniformly to rental income subject to tax after personal allowance allocation. Impact: basic, higher, and additional rate rental income all receive the same +2pp increase. When this matters: always — this is a simplification of the policy as implemented in the calculator.

Limitations

The calculator does not cover:

• Capital gains tax on property disposal
• Private Residence Relief, EIS relief, or other investment reliefs
• Scottish or Welsh income tax rate variations
• Pension interactions or salary sacrifice effects
• Void periods or tenant default risk
• Property revaluation or capital growth projections
• Multi-entity group relief or associated company thresholds
• Budget 2025 savings income changes (savings income overlay is not implemented)
• Director salary optimisation for company ownership

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When to Get Professional Advice

This calculator provides a starting point for understanding how Budget 2025 rate changes affect your property tax. A qualified tax adviser can factor in reliefs, allowances, planning strategies, and interaction effects that a general-purpose comparison tool cannot model — including incorporation timing, dividend extraction strategies, and multi-year tax planning. Consult an adviser before making financial decisions based on these estimates.

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FAQ

Why does my tax change between years even though my income stays the same?

The calculator holds your income and expenses constant to isolate the effect of Budget 2025 tax rate changes. In 2026-27, dividend tax rates increase by 2 percentage points. In 2027-28, a 2 percentage point surcharge is added to income tax on rental income. These are the only variables — your inputs do not change.

Does the 2027-28 income tax increase apply to all my income?

No. The Budget 2025 rental income surcharge applies only to rental property income, not to employment, pension, or other personal income. The calculator uses 2026-27 base rates for all income and then adds a separate +2pp surcharge on the rental portion only. This is a policy overlay, not a general rate change.

Why is my company's tax the same in 2027-28 as 2026-27?

Corporation tax rates do not change between these years. The 2027-28 rental income surcharge applies to individual income tax only — companies pay corporation tax on rental profits, which is not affected. Dividend tax rates were increased in 2026-27 and remain at those levels in 2027-28, so there is no further change.

How does the calculator handle mortgage interest?

For individual ownership, mortgage interest is not deducted from rental income — Section 24 restricts relief to a basic-rate tax credit (20% to 2026-27; 22% from 2027-28 per Budget 2025). This credit is capped at the lower of: mortgage interest × basic rate, taxable rental profit, or total income tax liability. For company ownership, mortgage interest is deducted as an expense before corporation tax is calculated.

What does the "primary driver" mean?

The primary driver identifies which tax component caused the largest change compared to the baseline year. For example, if your total tax increased by £738 and all of that came from dividend tax, the primary driver is "Dividend Tax". This helps you understand which Budget 2025 policy change affects you most.

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Disclaimer

This calculator provides estimates based on the methodology described above. It is not tax, legal, or financial advice. Tax legislation changes regularly. Rates and thresholds were correct as at 27 April 2026 but may have changed. Always verify with HMRC or a qualified adviser. PropMatch.uk accepts no liability for decisions based on calculator outputs.

Further Reading

• Budget 2025 Wizard Manual
• Compare Tax Years Calculator
• Mortgage Calculator Quick Guide