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Try the Rental Yield Calculator to put these concepts into practice.
Key takeaways
- ✓Gross yield of 5–7% is achievable in Northern cities; London typically 3–5%
- ✓Section 24 means higher-rate taxpayers can no longer fully deduct mortgage interest from rental income
- ✓Net yield after all costs is typically 2–4 percentage points lower than gross yield
- ✓Limited company structures restore mortgage interest deductibility for new purchases
- ✓The SDLT 3% surcharge on BTL purchases increases effective cost and reduces overall return
Gross vs net yield on UK buy-to-let
Gross yield is annual rent as a percentage of property value before any costs. Net yield subtracts all operating costs: letting agent fees (10–15% of rent including management), maintenance (0.5–1.5% of property value annually), landlord insurance (£200–£600/year), buildings insurance, void period allowance (5–8% of potential rent), and accountancy fees.
On a typical £200,000 BTL property with 6% gross yield (£12,000/year rent), costs might total £4,500–£6,000 per year. Net yield: 3–3.75%.
Before mortgage costs, a 3–4% net yield can seem reasonable. But with a mortgage and Section 24, the economics tighten significantly.
Section 24: the game-changer for mortgaged landlords
Section 24 (fully phased in by 2020) fundamentally changed how mortgage interest is treated for residential landlords.
Before Section 24: Mortgage interest was deducted from rental income before calculating taxable profit. Higher-rate taxpayers got effective 40% relief on interest.
After Section 24: Landlords receive only a basic rate (20%) tax credit on mortgage interest. Higher-rate and additional-rate taxpayers face significantly higher tax bills on the same rental income.
Practical example: £12,000 gross rent, £5,000 mortgage interest, £4,000 other expenses. Under Section 24, taxable profit is £8,000 (expenses only deducted, not interest). Tax at 40% = £3,200, minus 20% credit on £5,000 interest = £1,000. Net tax: £2,200.
Pre-Section 24 this landlord would have paid £1,200 in tax. Section 24 has nearly doubled their tax bill.
💡 Tip: If you're a higher-rate taxpayer with mortgaged BTL property, get an accountant to calculate your post-Section 24 actual net return before expanding your portfolio.
Limited company structures
Many UK landlords have moved to purchasing via limited company, where corporation tax rules allow full mortgage interest deductibility.
Advantages: Full interest deductibility, corporation tax at 25% (vs 40%/45% income tax), ability to retain profits at the lower rate.
Disadvantages: Higher BTL mortgage rates (typically 0.3–0.8% above personal rates), less lender choice, annual accountancy costs (£500–£2,000), and dividend tax when extracting profits.
The limited company route typically makes sense for landlords with 3+ properties who are higher-rate taxpayers and plan to grow. For a single property or basic-rate taxpayers, the costs may not justify the structure.
BTL yield by UK region
London: Gross 3–5%, inner London often 3–4%. Lowest yields nationally but historically strong capital growth.
Manchester / Leeds / Sheffield / Liverpool: Gross 5–8%. The strongest combination of yield and capital growth outside London.
Birmingham / Nottingham / Leicester: Gross 5–7%. Strong rental demand from large student and young professional populations.
Newcastle / Sunderland: Gross 6–9%. High yields but mixed capital growth and higher management intensity.
Glasgow: 5–7% gross. Edinburgh: 4–6% gross, lower yield than Glasgow but stronger appreciation prospects.
Frequently Asked Questions
Calculators mentioned in this guide
Disclaimer: Calculations are estimates for general guidance only and do not constitute regulated financial advice. Rates and costs vary by lender and property location. Stamp Duty Land Tax figures use England rates — Scotland (LBTT) and Wales (LTT) differ. Always consult an FCA-authorised mortgage adviser.