Most "rental yield calculator" pages on Google give you one number: gross yield. For a UK landlord paying Section 24 taxed profit, service charges, management fees and insurance, gross yield is almost useless as a decision metric.
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.
We also cover how the Renters' Rights Act 2025 (in force 1 May 2026), MTD ITSA quarterly reporting from April 2026 and the current mortgage rate environment change the maths.
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.
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% basic-rate credit instead. So:
After-tax position: −£2,258 (operating) − £627 (tax) = −£2,885 / year
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 ~£700 after tax to a higher-rate landlord (because Section 24 inflates your taxable profit).
2. Limited company (SPV) structure
A limited company fully deducts mortgage interest before corporation tax. Break-even vs personal ownership usually sits around 3–4 higher-rate properties. Our 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 — capital-growth play only |
| 5–6% | Marginal — sensitive to one void or rate move |
| 6–8% | Healthy — absorbs voids and repairs |
| 8%+ | Strong — usually HMO, multi-let or northern city |
For a limited-company BTL at 60% LTV, subtract ~1–1.5% from the thresholds above.
How LetCompliance helps the yield maths
You cannot manage net yield without a per-property ledger. LetCompliance stores every compliance cost (Gas Safety, EICR, EPC), every rent receipt and every expense against the property, so the real net yield is one export away at year-end — ready for your accountant and MTD ITSA.
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
Start your 14-day LetCompliance trial to log every compliance cost and rent receipt per property — MTD ITSA-ready and net yield calculated automatically.
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 — capital growth play only. 5–6% is marginal, 6–8% is healthy, 8%+ is strong (often HMO or northern city). For a limited-company BTL at 60% LTV, subtract roughly 1–1.5% from each threshold.
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 20% mortgage interest credit). For a higher-rate personal BTL at 5% mortgage rates, after-tax yield is often 2–4 percentage points below gross. Our [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 typically stays 3–5 percentage points above standard BTL — strong, but not the gross headline.