Rental yield is usually the first number anyone quotes about a buy-to-let, and it is also the number most often quoted badly. A listing that promises "7% yield" might be using the asking price, the best-case rent and no costs at all. Yours should be built from figures you can defend.
This guide covers gross yield, net yield and the purchase taxes that change the maths, using rates checked on 10 November 2026. The examples are illustrative, with the working shown, so you can swap in your own numbers.
This is general information, not financial or tax advice. Tax rules change, so check the linked official pages or speak to an accountant before you commit.
What rental yield is, and what it is not
Rental yield is a year's rent as a percentage of what the property cost, so properties at different prices can be compared on a level footing. It is not profit: it ignores your mortgage, your tax position and any change in the property's value. There are two versions worth knowing.
- Gross yield uses the rent before any costs.
- Net yield takes off the costs of running the let, and can also include the costs of buying.
Gross yield: the quick filter
The formula is simple:
Gross yield (%) = annual rent ÷ purchase price × 100
Illustrative example. A property priced at £200,000 that would let for £1,000 a month brings in £12,000 a year.
£12,000 ÷ £200,000 × 100 = 6.0% gross yield
Gross yield is good for ruling properties out quickly. If a property looks weak here, it will look worse once costs go in. Use a rent you have evidence for: comparable lets in the same street or postcode tell you more than the selling agent's estimate. If you are still choosing where to buy, our guide on how to compare areas before buying a buy-to-let shows where to find price and rent data.
Net yield: where the real numbers live
Net yield subtracts the cost of running the property from the rent:
Net yield (%) = (annual rent − annual running costs) ÷ purchase price × 100
Some investors divide by the total cost of buying (price plus purchase tax, legal fees and survey) instead. Either works if you are consistent, and total cost gives a lower, more honest figure.
Running costs to include
HMRC's guidance on working out your rental income lists allowable expenses, which doubles as a checklist:
- repairs and maintenance
- water rates, council tax, gas and electricity, where you pay them
- landlord insurance
- services such as cleaning or gardening
- letting agent and management fees
- accountancy fees
- ground rent and service charges, for leasehold flats
- advertising
There is no official source for "typical" letting agent fees, so get quotes and use your own figure. The same goes for repairs.
Two other items are worth a line in your sums:
- Void periods. Allow for weeks when the property sits empty between tenants. How long is your judgement, based on the local market.
- Registration and compliance. In England, the new Private Rented Sector Database is announced but not yet in force. It is due to roll out region by region from 15 December 2026, starting in the West Midlands, with a published fee of £65 per property per year. Treat the timing and fee as subject to change.
Energy efficiency
Private lets in England and Wales currently need an EPC rating of at least E (gov.uk MEES guidance). The government has confirmed a planned move to EPC C or equivalent from 1 October 2030, with a cost cap of £10,000 per property. This is not yet law: the regulations still need Parliamentary approval. If you are looking at a property rated below C, an upgrade reserve is a sensible line in a long-term yield sum.
Purchase taxes in 2026/27
England and Northern Ireland: Stamp Duty Land Tax
If you will own more than one home after the purchase, or you are buying through a company, you will normally pay the higher rates for additional dwellings. The surcharge rose from 3% to 5% on 31 October 2024. From 1 April 2025, the higher rates are:
| Portion of the price | Higher rate |
|---|---|
| Up to £125,000 | 5% |
| £125,001 to £250,000 | 7% |
| £250,001 to £925,000 | 10% |
| £925,001 to £1.5 million | 15% |
| Above £1.5 million | 17% |
Each rate applies only to the slice of the price within that band. HMRC's worked figure for a £300,000 additional property is:
5% × £125,000 + 7% × £125,000 + 10% × £50,000 = £6,250 + £8,750 + £5,000 = £20,000
- Non-UK resident buyers pay a further 2 percentage points (gov.uk).
- Purchases under £40,000 do not attract the higher rates.
- Companies pay the higher rates from their first dwelling. A flat 17% rate can apply to company purchases over £500,000, though reliefs are available, including for property rental businesses.
Scotland: LBTT and the Additional Dwelling Supplement
Scotland uses Land and Buildings Transaction Tax. On a buy-to-let you will usually also pay the Additional Dwelling Supplement, which has been 8% since 5 December 2024. Unlike the English surcharge, ADS is a flat percentage of the whole price, added on top of normal LBTT.
Revenue Scotland's bands give this result for a £200,000 buy-to-let: LBTT of 2% × £55,000 = £1,100, plus ADS of 8% × £200,000 = £16,000, for a total of £17,100.
Wales: Land Transaction Tax higher rates
Wales uses a separate higher rates table from 11 December 2024: 5% up to £180,000, 8.5% to £250,000, 10% to £400,000, 12.5% to £750,000, 15% to £1.5 million and 17% above. The Welsh Revenue Authority's worked example for a £260,000 second home comes to £9,000 + £5,950 + £1,000 = £15,950.
Scottish and Welsh budgets can change these rates, sometimes with immediate effect, so check the official page on the day you run your numbers.
A worked example, illustrative only
Here is the full sum for an imaginary £200,000 buy-to-let in England. The rent, costs and fees are made-up round numbers to show the method. They are not market data.
Step 1: purchase tax. At the higher rates: 5% × £125,000 = £6,250, plus 7% × £75,000 = £5,250. SDLT = £11,500.
Step 2: total cost. Add an assumed £2,500 for legal fees and a survey (replace this with real quotes). £200,000 + £11,500 + £2,500 = £214,000.
Step 3: rent you expect to collect. £1,000 a month is £12,000 a year. Allow one month's void: £12,000 − £1,000 = £11,000.
Step 4: running costs. Assume £2,000 a year for insurance, repairs, agent fees and the rest. £11,000 − £2,000 = £9,000 net rent.
Step 5: the yields.
- Gross yield on price: £12,000 ÷ £200,000 = 6.0%
- Net yield on price: £9,000 ÷ £200,000 = 4.5%
- Net yield on total cost: £9,000 ÷ £214,000 = 4.2% (to one decimal place)
Same property, three answers, so always ask which version is being quoted.
Mortgage interest, Section 24 and why yield is not profit
None of the figures above include mortgage costs. If you are buying with a mortgage as an individual, Section 24 matters.
Since 6 April 2020, individual landlords cannot deduct residential mortgage interest when working out rental profit. Instead they get a tax reduction at the basic rate, which is 20% for 2026/27, on the lowest of their finance costs, their property profits, or their adjusted total income above the personal allowance (gov.uk guidance with case studies). Any unused amount carries forward. Companies are not affected by this restriction.
Illustrative example. Take the £9,000 net rent above and assume £6,000 a year of mortgage interest. The landlord is a higher-rate taxpayer and all of the rental profit falls in the 40% band.
- Tax on rental profit: 40% × £9,000 = £3,600
- Tax reduction: 20% × £6,000 (the lowest of the three figures here) = £1,200
- Tax due: £3,600 − £1,200 = £2,400
- Cash left after interest and tax: £9,000 − £6,000 − £2,400 = £600 a year
A 4.5% net yield can leave very little once borrowing and tax are counted, which is why the full sum matters.
For 2026/27, income tax rates in England, Wales and Northern Ireland are 20%, 40% and 45%, with a £12,570 personal allowance. Scotland has its own six rates, based on where you live rather than where the property is.
Looking ahead to 2027/28 (not yet in force). Keep two different pictures apart:
- Legislated but not yet in force: Finance Act 2026, section 7 sets separate property income rates of 22%, 42% and 47% from 6 April 2027 for England, Wales and Northern Ireland.
- Announced, not yet law: at Budget 2026 (28 October 2026), the government announced higher property income rates of 24%, 44% and 49% from the same date, to be legislated in the Finance Bill 2026-27.
The finance cost reduction from 2027/28 will follow the property basic rate: 22% under current law, or 24% if the Finance Bill is enacted. Scotland and Wales have not yet set or confirmed their own 2027/28 property rates. Model 2026/27 law (20%, 40% and 45%, with a 20% finance cost reduction) as your starting point.
Rules in England that shape the rent side
Since 1 May 2026, the Renters' Rights Act has changed some assumptions that older yield calculators made:
- Rent can be increased only once a year, using a section 13 notice with at least two months' notice, and not in the first year.
- You can take no more than one month's rent in advance, and only after the tenancy is signed.
- You must state a specific rent in written adverts and cannot accept offers above it, so do not count on bidding pushing the rent up.
For what these rules mean when you choose a tenant, see our tenant screening checklist.
FAQ
What is a good rental yield in the UK?
There is no official benchmark, and it depends on your goals, borrowing and area. The useful question is whether the net figure, after your real costs, leaves enough margin for rate rises and empty months.
Should I calculate yield on the purchase price or the total cost?
Either works if you are consistent. Total cost, including purchase tax and fees, gives a more realistic picture of the return on the money you actually spend.
Does Stamp Duty apply to every buy-to-let?
In England and Northern Ireland, the higher rates apply if you will own more than one dwelling after the purchase, or you are a company, and the price is £40,000 or more. Scotland and Wales have their own taxes. Check gov.uk or a conveyancer for your case.
Can I use the £1,000 property allowance instead of expenses?
If your gross property income is over £1,000, you can deduct the £1,000 property allowance instead of your actual expenses. For most full buy-to-lets, actual expenses will be higher, but it is worth checking.
Run your own numbers
If you would rather not rebuild these sums for every property, the Ashlar Ledger Buy-to-Let Yield Calculator does the working for you. You enter the price, rent, deposit and mortgage, choose the nation, and it applies the 2026/27 purchase-tax rates and shows gross yield, net yield and cashflow side by side. Agent fees and other costs stay as your own inputs, because no official typical figure exists.
It is also part of the Landlord Starter Kit bundle, alongside the tenant screening pack and the area comparison template. View the Buy-to-Let Yield Calculator
Already letting in your own name? Our guide to Making Tax Digital for landlords explains the quarterly record-keeping rules, and our MTD landlord record keeper is coming soon.
Figures checked against official sources on 10 November 2026 and reviewed on 11 November 2026. Ashlar Ledger: figures you can build on.