You’ve seen a property advertised at a healthy-looking yield and you want to know what you’d actually keep. Most "rental yield calculator" pages on Google give you one number: gross yield. Once you’re paying tax on profit under Section 24, service charges, management fees and insurance, that number is almost useless for making a decision.
This guide walks through the three yield measures that actually matter in 2026: gross yield, net yield (after running costs) and after-tax yield (what actually lands in your bank). Each stage is shown with a worked example for a typical £200,000 Leeds flat renting for £950 pcm.
The three yields in one formula
| Yield | Formula | What it tells you |
|---|---|---|
| Gross | Annual rent ÷ Purchase price × 100 | Sticker headline only |
| Net | (Annual rent − Running costs) ÷ Purchase price × 100 | Real operating return |
| After-tax | (Net income − Income tax) ÷ Equity invested × 100 | What actually lands in your pocket |
Net yield is what serious investors quote. After-tax yield is what matters for your decision.
The after-tax figure only stays true if the costs are recorded as they happen. From £7.99 a month, LetCompliance records the rent and every cost against the property, shows profit and loss per property, and sends your Making Tax Digital quarterly updates from the same figures. Get started
Worked example: a £200,000 Leeds flat at £950 pcm
Purchase: £200,000
Mortgage: £150,000 at 5.1% interest-only (BTL 5-year fix, Spring 2026)
Rent: £950 pcm = £11,400 / year
Step 1: Gross yield
£11,400 ÷ £200,000 × 100 = 5.7% gross
Looks fine. This is where most articles stop. Now reality.
Step 2: Net yield (operating)
| Cost | Annual (£) |
|---|---|
| Mortgage interest (5.1% × £150k) | 7,650 |
| Letting agent (10% of rent + VAT) | 1,368 |
| Buildings insurance | 280 |
| Gas Safety + EICR amortised (every 1–5 yrs) | 90 |
| Maintenance reserve (1% of value) | 2,000 |
| Void allowance (5% of rent) | 570 |
| Service charge / ground rent (flat) | 1,400 |
| Accountancy | 300 |
| Total costs | 13,658 |
Net income: £11,400 − £13,658 = −£2,258 → loss before tax
That's right: at current 2026 mortgage rates, a flat that looked 5.7% gross runs at a small operational loss.
Step 3: After-tax yield (Section 24 phantom income)
Here's the trap Section 24 creates. HMRC does not treat mortgage interest as a deductible expense. You get a 20% tax credit instead (22% from 2027–28, when property income is taxed at 22%, 42% and 47%). So, for 2026–27:
- Taxable profit (for HMRC): rent − allowable expenses excluding mortgage interest = £11,400 − £6,008 = £5,392
- Tax at 40% (higher-rate landlord): £5,392 × 40% = £2,156.80
- Less the 20% credit, worked on the lowest of your mortgage interest (£7,650), your property profit (£5,392) and your adjusted total income. Here the profit is lowest: £5,392 × 20% = £1,078.40
- Tax due: £2,156.80 − £1,078.40 = £1,078.40
- The £2,258 of interest that got no credit carries forward to later years
After-tax position: −£2,258 (operating) − £1,078 (tax) = −£3,336 / year
From 2027–28 the rates become 42% and 22%, which gives the same £1,078.40 here.
A higher-rate landlord pays tax on a property that's losing money on a cash basis. This is phantom income.
What actually drives a good 2026 yield
1. Lower mortgage leverage
Dropping from 75% LTV to 60% LTV cuts monthly mortgage interest by ~20%. Every £1,000 saved on interest is worth about £800 after tax (£780 from 2027–28), because you lose the credit on it. Where the credit is capped, as in the example above, the saving is worth the full £1,000.
2. Limited company (SPV) structure
A limited company fully deducts mortgage interest before corporation tax. Whether it beats personal ownership depends on the transfer costs and how long you hold. The SPV transfer guide covers the hidden costs.
3. HMO or multi-let
An HMO of 4–5 rooms at £550 pcm each (£26,400 gross on a £200k house) can lift gross yield to 13%+. Net yield still requires an extra £2,000–3,000 in HMO-specific costs (licensing, fire doors, amenity compliance).
4. Northern / Midlands geography
A £120,000 Hull terrace renting at £700 pcm = 7% gross, and with lower mortgages + service charges net yield clears 4% even in 2026.
Quick decision matrix: when is a yield "good"?
| Gross yield | Verdict (personal BTL, 75% LTV, higher-rate) |
|---|---|
| Under 5% | Losing money after tax: a capital-growth play only |
| 5–6% | Marginal: one void or rate move can tip it |
| 6–8% | Healthy: absorbs voids and repairs |
| 8%+ | Strong: usually HMO, multi-let or northern city |
How LetCompliance helps the yield maths
Start with the free rental yield calculator (no signup) to model gross, net and after-tax yield before you buy. Once the property is let, the real figures come from the let itself. LetCompliance records them against the property as they happen: the rent in the ledger, the certificate costs (Gas Safety, EICR, EPC), the repairs and every other expense. Profit and loss per property gives you the real net yield at year-end, and the same records feed your SA105 tax pack and the MTD quarterly updates LetCompliance sends to HMRC as software recognised by HMRC.
FAQs
Is yield gross or net by default?
In UK estate agent listings, "yield" almost always means gross. Treat anything on Rightmove or a sales pack as gross until proven otherwise.
Do I include capital growth in yield?
No. Yield is the income return. Total return = yield + capital growth. Both matter, but they are separate metrics.
What's a "good" post-tax yield?
For a higher-rate personal BTL, a sustainable after-tax yield above 3% on deployed equity is solid. Below 2%, compare against an ISA or pension.
Where to go next
- Section 24 phantom income explained: why taxed profit > cash profit
- SPV buy-to-let transfer costs 2026: when does incorporation beat personal?
- Capital gains tax on BTL 2026: the exit side of the yield equation
Get started, from £7.99 a month, and log the rent and every cost against the property as the let runs. Your real net yield is then one export away, and the figures are ready for MTD ITSA.
Sources and scope
- GOV.UK: Renting out a property
- GOV.UK: Your landlord’s safety responsibilities
- HSE: Gas safety in rented properties
Every figure on this page is cited to GOV.UK, legislation.gov.uk or HSE and reviewed against the live source every quarter. This is guidance, not individual legal advice.
Allowable vs Capital Repair Decision Tree
The single line HMRC actually draws between an allowable repair and a capital improvement, with 24 worked examples for UK landlords.
- 24 real repair scenarios classified
- Repair-vs-capital decision tree (1-page A4)
- Replacement-of-domestic-items relief explained
- Self Assessment line mapping for SA105
Frequently asked questions
What is a good rental yield in the UK in 2026?
For a higher-rate personal BTL at 75% LTV, gross yield under 5% typically loses money after tax, so it only works as a capital growth play. 5–6% is marginal, 6–8% is healthy, 8%+ is strong (often HMO or northern city).
How is net yield different from gross yield?
Gross yield divides annual rent by purchase price. Net yield subtracts running costs first: mortgage interest, letting fees, insurance, maintenance reserve, voids, service charge, accountancy. Net yield is what serious UK BTL investors quote. Gross yield is the estate agent headline.
What counts as "after-tax" rental yield?
After-tax yield is net income minus income tax (allowing for Section 24 phantom income inflating taxable profit and the mortgage interest credit). In 2026–27 the credit is 20%; from 2027–28 property income is taxed at 22%, 42% and 47% and the credit is 22%. The [Section 24 guide](/blog/section-24-phantom-income-landlord-tax-2026) shows the full working.
Does HMO yield look better than standard BTL?
Yes on gross (often 10–15% vs 5–7%), but HMO carries extra costs: licensing (£500–£2,000), fire doors and compliance works, higher mortgage rates (+0.3–0.7%), more voids, higher management fees. Net yield can still beat a standard BTL, but by less than the gross headline suggests.
