Rental yield calculator UK — gross vs net yield

Worked example

Take the default inputs: a £280,000 property let for £16,500 a year (£1,375 a month). Gross yield is £16,500 ÷ £280,000 = 5.9%.

Now allow for reality. A 8% void allowance — roughly 4 weeks a year empty between tenants — cuts collected rent to £15,180. A 10% letting agent fee on the rent collected costs £1,518. Insurance, repairs, certificates and service charges of £2,000 come off next. What is left, the net operating income, is £11,662: a net yield of 4.2%.

That 1.7% gap appears before a single pound of mortgage interest or income tax. For a mortgaged landlord, the numbers that matter come next: tax after Section 24 and cash flow and return on the cash you put in.

Gross yield vs net yield

Gross yield = annual rent ÷ purchase price. It ignores every cost, which is why agents like it.

Net yield = (rent collected − letting fees − running costs) ÷ purchase price. This is the property's own return before financing and tax — what a cash buyer earns before income tax. Some people also add purchase costs such as stamp duty to the price in the denominator; we keep price alone here so the figure is comparable with listings, and put stamp duty where it belongs, in the cash-on-cash calculation.

Neither yield includes mortgage interest or tax. Since Section 24, mortgage interest is not deducted from rental profit for individual landlords at all; it only earns a tax credit at the basic rate. That is why two landlords with the same net yield can end up with very different after-tax results depending on their other income.

How to use net yield

• Compare it with your mortgage rate. If net yield is below the interest rate on the borrowed money, every borrowed pound loses money before tax.
• Stress the voids. One extra empty month is about 8% of a year's rent. Try 8–10% for a property that turns over tenants often.
• Be honest about costs. Safety certificates, licensing, redecoration and boiler replacement are regular, not exceptional.
• Use it to rank properties, not to decide. The decision belongs to the after-tax figures, because tax is where UK buy-to-let has changed most.

What this calculator does not include

Gross and net yield leave out mortgage costs, income tax, stamp duty, capital growth and selling costs by definition. All of those are in the cash flow calculator. The yield figures also treat the rent as fixed for the year.

Questions landlords ask

Is gross yield before or after mortgage costs?

Before. Gross yield is simply annual rent divided by the price. Net yield takes off running costs and letting fees but still not the mortgage; mortgage interest and tax are in the after-tax and cash flow tools.

What void allowance should I use?

There is no official figure. The default here is 8%, about a month a year. Use your own letting history if you have one, and test a higher figure for student or short-tenancy lets.

Should stamp duty be included in yield?

Not in gross or net yield as usually quoted, which use the purchase price. Stamp duty is part of the cash you invest, so it belongs in cash-on-cash return — this site puts it there automatically.

Does net yield show my profit?

No. It shows the property's operating return before financing and tax. Your profit depends on your mortgage and, since Section 24, on your personal tax band.