Most landlords can quote their gross yield to one decimal place and have no idea what their property actually keeps. The gap between those two numbers is where buy-to-let deals are won and lost. Yield itself is a one-line sum. The work is knowing which version to use, what to strip out of it, and how tax (above all Section 24) quietly takes a bite that never shows up in the headline figure.
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What is rental yield, and which formula matters
Rental yield expresses the annual rent as a percentage of the property's value. It exists so you can compare a GBP150,000 terrace in Bradford against a GBP500,000 flat in Reading on the same footing: a percentage, not a pound figure. There are two versions, and they are not interchangeable.
Gross rental yield = (annual rent / property value) x 100. A property worth GBP200,000 let at GBP1,200 a month earns GBP14,400 a year, which is a 7.2% gross yield. Quick, useful for an initial sift, and almost always the number an estate agent quotes.
Net rental yield = ((annual rent - annual running costs) / property value) x 100. This is the figure that survives contact with reality, because it counts the cost of actually owning and letting the property.
One refinement worth knowing: yield on cost. As a property's value rises, its yield on current value falls even though the rent and your original outlay have not changed. Yield on cost holds the denominator at what you paid (plus purchase costs and capital works), which is the honest way to see how a deal you bought years ago is still performing.
Gross versus net yield: a side-by-side
The two metrics answer different questions, so use each for what it is good at rather than treating gross yield as a softer version of net.
| Question | Gross yield | Net yield |
|---|---|---|
| What it measures | Rent before any costs | Rent after running costs |
| Best used for | Quick screening and comparing areas | Investment decisions and cash-flow planning |
| Who quotes it | Estate and letting agents, listings | Investors and accountants |
| Reflects voids and repairs | No | Yes |
| Reflects tax | No | No (a further after-tax step is needed) |
| Typical relationship | The headline figure | Usually two to four points lower |
The practical rule: screen on gross, decide on net, and never sign on gross alone. A 7.2% gross yield and a 2.6% net yield can describe the same property, as the worked example below shows.
A worked net yield calculation
Take a GBP200,000 property let at GBP1,200 a month, so GBP14,400 of annual rent and a 7.2% gross yield. Now run the real costs of holding it for a year:
- Mortgage interest: GBP4,800
- Letting and management fees: GBP1,440
- Buildings and landlord insurance: GBP300
- Repairs and maintenance: GBP800
- Gas and electrical safety certificates: GBP200
- Accountancy and professional fees: GBP400
- Void allowance (around four weeks): GBP1,200
Total running costs come to GBP9,140, leaving GBP5,260 of net rental income. Net yield is therefore (GBP5,260 / GBP200,000) x 100 = 2.63%. The same property that screened at 7.2% delivers a real income return of 2.63% once you let it properly. Nothing in that calculation is unusual; it is simply what gross yield hides.
What is a good rental yield in the UK?
Across the UK, gross yields for ordinary buy-to-let property mostly fall between 5% and 8%. The spread is driven almost entirely by price: where capital values are high relative to rents, yields compress, and the return leans on growth instead of income. The figures below are broad market ranges, not a forecast for any one street, and the local lettings market is the only reliable guide to achievable rent.
| Region or market type | Typical gross yield range | Trade-off |
|---|---|---|
| London and the higher-priced South East | Around 3% to 5% | Lower income, historically stronger capital growth |
| Major regional cities (for example Manchester, Birmingham, Leeds) | Around 5% to 7% | A balance of income and growth |
| Northern England and parts of the Midlands | Around 6% to 8% | Higher income, more hands-on management |
| Scotland and Wales (varies sharply by locality) | Around 6% to 9% | Higher income, devolved tax and regulation to factor in |
Two cautions. First, a high gross yield often signals a market with weaker capital growth, more turnover and heavier management, so the higher number is not free. Second, these are gross figures; the net yield you actually bank will be materially lower, and the after-tax return lower still.
Step by step: how to calculate yield on a property
If you want a repeatable process rather than a one-off sum, work through it in this order.
- Fix the property value. Purchase price for a deal you are assessing; current market value for a property you already hold.
- Set the annual rent. Achievable monthly rent times twelve. Use a let figure you can defend, not the optimistic asking rent.
- Calculate gross yield. Annual rent divided by value, times 100.
- Deduct running costs. Interest, fees, insurance, repairs, certificates, service charges and a void allowance. Exclude capital repayments.
- Calculate net yield. Income after costs divided by value, times 100.
- Adjust for tax. Apply your marginal rate to taxable profit and account for the Section 24 finance-cost restriction, covered next.
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Cash-on-cash return: yield on your own money
Yield on the full property value is the right tool for comparing properties, but it tells you nothing about the return on the cash you personally committed. Cash-on-cash return fixes that:
Cash-on-cash return = (annual net income / total cash invested) x 100.
If the property above was bought with a GBP50,000 deposit and GBP5,000 of purchase costs, GBP55,000 of your own money is in the deal. A net income of GBP5,260 is a cash-on-cash return of (GBP5,260 / GBP55,000) x 100 = 9.6%. Gearing lifts the percentage return on your cash, but it also introduces the mortgage interest that Section 24 then penalises, so the two figures have to be read together rather than cherry-picked.
Where tax changes the answer: Section 24
Section 24 is the reason net yield still flatters the return for many landlords. For an individual letting residential property, mortgage and other finance costs are no longer deducted from rental profit. Instead you are taxed on the full profit including interest, and then given a tax reducer (a credit) at the basic rate. The credit is 20% for 2026/27 and earlier.
From 6 April 2027, property income in England, Wales and Northern Ireland is taxed at its own separate rates of 22% basic, 42% higher and 47% additional, enacted by Finance Act 2026 (only Scotland is carved out for 2027/28, where Holyrood-set rates apply). Critically, the Section 24 finance-cost reducer rises in step to 22%, so it tracks the new basic property rate. That matters: a basic-rate landlord sees no new wedge open up, because the reducer rate matches the rate on their property income. A higher or additional-rate landlord gets a slightly better credit (20% rising to 22%) but it still sits far below their 42% or 47% rate, so the finance-cost penalty persists. For a step-by-step calculation of the credit, see our guide to calculating the Section 24 tax credit.
The practical effect on yield is simple to state and easy to overlook: a higher-rate landlord with significant borrowing pays tax on a profit figure that includes interest, so the cash kept after tax is lower than net yield implies. This is one of the main reasons landlords with larger geared portfolios look at holding property through a company, where finance costs remain fully deductible against profits, though incorporation brings its own tax and administrative consequences and is not automatically better.
Yield is income only: don't forget capital growth
Yield measures the income return and nothing else. The complete picture is total return, which combines yield with the change in the property's value:
Total return = rental income return + capital growth.
This is why a 3% to 5% yielding London flat can, over a full cycle, outperform a 9% yielding property in a market with flat or falling prices. It is also why the highest-yield areas are rarely the highest total-return areas. When the property is eventually sold, the growth is taxed: residential capital gains tax is charged at 18% for gains within the basic-rate band and 24% above it, after the annual exempt amount of GBP3,000. Build that disposal tax into any total-return projection rather than treating the headline gain as cash in hand.
Tracking yield across a portfolio
One property's yield is a number; a portfolio's yield is a management tool. The right portfolio figure is a weighted average, weighting each property's yield by its value rather than taking a simple mean. For a GBP200,000 property at 6% and a GBP300,000 property at 4%, the weighted yield is ((GBP200,000 x 6%) + (GBP300,000 x 4%)) / GBP500,000 = 4.8%, not the simple average of 5%. Reviewed regularly, weighted yield flags the laggards, the candidates for a rent review and the properties that have grown enough in value that the capital might work harder redeployed. Our note on portfolio accounting and profitability goes into how to keep these figures clean.
Records, Making Tax Digital and getting the inputs right
A net yield is only as good as the cost figures behind it, and from April 2026 those figures increasingly have to live in digital records. Making Tax Digital for Income Tax is live and phases in by qualifying income: above GBP50,000 from 6 April 2026, above GBP30,000 from 6 April 2027, and above GBP20,000 from 6 April 2028. In practice that means keeping repair, insurance, fee and void records digitally through the year and submitting quarterly updates from compatible software, rather than reconstructing the year from a shoebox each January. The discipline is good for yield analysis too: it forces you to capture the running costs that net yield depends on as they happen. Our Making Tax Digital guide covers who is in scope and when.
For the wider tax position behind the yield, including how rental profit is computed and taxed, see our guide to tax on rental income and the broader property investment tax guide.
Where this leaves you
Use gross yield to screen, net yield to decide, cash-on-cash to judge your own money, and total return to see whether income or growth is doing the heavy lifting. Then layer in tax, because Section 24 and the separate property income rates from April 2027 change what a geared higher-rate landlord actually keeps, even when the yield on the spreadsheet looks healthy. If you want a second pair of eyes on how the tax position affects your real return, or whether your portfolio structure still fits, our team works with landlords across the UK on exactly that.