Buy-to-Let Yield Calculator

Three yields, and why only one is honest

Property adverts love quoting gross yield, the annual rent divided by the purchase price, because it is the flattering number. This calculator shows it, but it also does the harder work of stripping out costs and tax to give a net after-tax yield, which is what actually lands in your bank account as a percentage of the capital you tied up. It takes your rent, deducts running costs like management, insurance and repairs, applies the Section 24 mortgage interest treatment, works out the tax, and then expresses the leftover cash flow as a yield on the property price.

That gap between gross and net is where amateur landlords come unstuck. A headline 6 or 7 percent gross can collapse to a fraction of that once a mortgage and a higher-rate tax bill are in the picture. This tool is for anyone appraising a rental before they buy, or a current landlord checking whether a property still earns its keep.

From a £200,000 flat to the cash in hand

Using the defaults: a £200,000 property, £1,100 monthly rent, £6,500 of annual mortgage interest, £2,200 of other costs, and a 40 percent marginal rate. Under Section 24 the interest does not reduce taxable profit directly; instead you get a 20 percent basic-rate credit against the tax.

The chart shows the journey from a respectable 6.6 percent gross yield down to a 0.7 percent net yield once costs, mortgage interest and Section 24 tax have taken their cut.

Section 24 in plain terms

Section 24, fully in force since the 2020/21 tax year, is the rule that turned mortgaged buy-to-let from a comfortable earner into a thin one for many higher-rate landlords. Before it, you deducted mortgage interest as an expense and were taxed on the profit after interest. Now you cannot deduct the interest at all; you are taxed on the rent less only the non-finance costs, and then you receive a flat 20 percent tax credit on the interest. For a basic-rate taxpayer the maths roughly nets off, but a higher-rate taxpayer effectively gets relief at 20 percent on interest they are taxed on at 40, which is the squeeze the example above shows so starkly.

There is a nastier side effect. Because the full rent counts as income before the credit, Section 24 can inflate your taxable income enough to drag you into the higher-rate band, restrict your personal allowance above £100,000, or trigger the High Income Child Benefit Charge, even when your real profit is modest. Heavily mortgaged higher-rate landlords are precisely the people this rule punishes.

Reading the result like an investor

A near-zero net yield like 0.7 percent does not automatically mean a bad deal, but it should make you stop and think. It tells you the property is barely paying its way on income alone, so your entire return depends on capital growth, which is not guaranteed. A practical tip: model a void by trimming the rent, and stress the mortgage interest upward to mimic a remortgage at a higher rate, because both will happen at some point. If the cash flow turns negative under those nudges, you are relying on subsidising the property from other income. Compare the net yield against a simple cash ISA paying 4 to 5 percent risk-free, and the case for a low-yielding, highly geared rental has to rest on growth and leverage rather than income.

Should I just hold the property in a limited company instead?

Section 24 does not apply to companies, which can still deduct mortgage interest in full against profit before paying corporation tax. That is the main driver behind the shift to limited-company landlords. But a company brings corporation tax on profit, tax on extracting the money as dividends or salary, higher mortgage rates, and accountancy costs, and moving an existing property in can trigger capital gains tax and a fresh SDLT charge. It tends to suit portfolio landlords retaining profit to reinvest, not someone with a single flat.

What yield should I actually be aiming for?

There is no universal answer, but many landlords look for a gross yield of at least 5 to 6 percent before they will consider a property, precisely because costs and tax erode it so heavily. Northern cities and university towns often show higher gross yields than London and the South East, where low yields are masked by historic capital growth. Use this tool on a few candidate properties and compare the net figure rather than the gross, since two flats with the same gross yield can deliver very different cash once mortgage and tax are layered on.