How to calculate rental yield properly.

Three numbers, three questions

Each measure answers a different question, so it helps to keep them apart.

• Gross yield is a year's rent divided by the price. It tells you how the rent compares with the price, and nothing about costs.
• Net yield is the income left after running costs, divided by the price. It's still before mortgage costs and tax.
• Cash-on-cash return is what's left after the mortgage as well, divided by the cash you put in. It shows what your own money earns, before tax.

Gross yield

Gross yield = annual rent ÷ purchase price × 100.

A flat bought for £400,000 and let at £2,000 a month brings in £24,000 a year if it's never empty. That's a gross yield of 6.00%.

Gross yield is quick to work out, and it's fine for a first sift. But it assumes the property is let every week of the year, and it ignores every cost. Two properties with the same gross yield can leave you with very different incomes.

Use the price you pay. For a property you already own, some investors use its current value instead. Either works, as long as you use the same basis every time you compare.

Net yield, and what to include

Net yield = (rent you actually collect − running costs) ÷ purchase price × 100.

Start with the rent you'd collect after voids, the weeks between tenants. Then take off what it costs to run the property for a year:

• Letting and management fees. If your agent is VAT-registered, VAT at 20% is added to the fee.
• Service charge and ground rent, if it's a leasehold flat.
• Landlord insurance.
• Maintenance and repairs. Allow more for an older property.
• Safety checks. In England, a yearly gas safety check by a Gas Safe registered engineer on any gas appliances you provide, an electrical inspection at least every five years, and a valid Energy Performance Certificate (EPC).
• Energy improvements. A home let in England or Wales generally needs an EPC rating of E or above. In its response of 21 January 2026, the government said it plans to raise that to C or equivalent for private tenancies by 1 October 2030, with spending capped at £10,000 a property. That still needs Parliament's approval.
• Accountancy.

Leave out the mortgage, the stamp duty and your legal fees. They belong in cash-on-cash.

A worked example

Here's the long-let example from our investor calculator. Every figure is an example to change, not a forecast for any property.

Worked example · £400,000 flat, £2,000 a month	Amount
Rent for a full year	£24,000
Less 2 void weeks	−£923
Less letting and management, 12% plus VAT	−£3,323
Less running costs	−£4,954
Net operating income	£14,800

The running costs are a £2,400 service charge, £350 for insurance, maintenance at 5% of the rent collected (£1,154), £450 for safety checks and £600 for accountancy.

Yields on the example	Yield
Gross yield, £24,000 ÷ £400,000	6.00%
Net yield, £14,800 ÷ £400,000	3.70%

In this example, more than a third of the rent goes on voids, fees and running costs before any mortgage payment.

Cash-on-cash, where the mortgage comes in

Net yield is the same whether you buy with cash or a mortgage. Cash-on-cash return isn't.

Cash-on-cash = (net operating income − mortgage payments) ÷ cash you put in × 100.

The cash you put in is the deposit plus buying costs. In this example the buyer isn't UK resident for stamp duty and already owns a home, so the 5% additional-property and 2% non-resident surcharges both apply. On the rates in force on 5 October 2026, stamp duty comes to £38,000. Legal fees are £2,000 and the survey £600. The mortgage is interest-only at an example rate of 5.5%.

Same flat, two deposits	25% deposit	40% deposit
Cash in	£140,600	£200,600
Mortgage interest a year	£16,500	£13,200
Cashflow a year, before tax	−£1,700	£1,600
Cash-on-cash	−1.21%	0.80%

With a 25% deposit, the interest is more than the net income, so the flat costs £1,700 a year to hold before tax. A 40% deposit turns that positive, but the return on the cash is under 1%.

The rate is only an example. A real quote comes from an FCA-authorised broker, and the calculator shows what a rate 1 point higher would do. Cash-on-cash also leaves out any change in the property's value, which can go down as well as up.

Tax comes after all three

None of these figures include income tax. If you own as an individual, you can't deduct mortgage interest from your rental profits. Instead, in the 2026 to 2027 tax year, you get a tax reduction of up to 20% of those finance costs. It can be less if your property profits or total income are lower.

From 6 April 2027, the income tax rates on property income for taxpayers in England and Northern Ireland will be 22%, 42% and 47%, and the reduction for finance costs will be given at 22%. Scotland and Wales can set their own property rates. Property income tax from 2027 explains the change. If you live abroad, UK property tax for overseas investors covers how your rent is taxed. Your accountant confirms what applies to you.

Comparing properties fairly

Use the same cost assumptions for every property on your list. A yield worked out with no voids and no maintenance will always look better than one worked out honestly.

Check the rent, too. Every yield rests on it, so compare it with similar homes let nearby rather than taking an asking rent on trust.

Gross yield flatters a short let, because its costs are usually much higher: cleaning, platform fees, bills, council tax and furnishing. In the calculator's default example, the same flat let short-term outside London shows a gross yield of 11.50%, almost twice the long let's. Its net yield is 4.07%. Long let or short let compares the two in full.

When we source a property for you, the shortlist shows stamp duty, buying costs, the estimated rent and running costs, and the yield they add up to. They're estimates, and you can test any of them in the calculator.