Breakdown
How it works
Gross yield (rent ÷ price) is the headline comparison figure; net yield deducts running costs; cash flow deducts mortgage interest. Since 2020 individual landlords cannot deduct mortgage interest from rental profit — they get a 20% tax credit instead — so higher-rate taxpayers are taxed on profit they do not receive. Return on cash invested is what matters: after-tax profit ÷ (deposit + buying costs).
Formula
Worked example
£220,000 flat, £1,100 rent, £2,400 costs, 2 void weeks, 75% LTV at 5.2%, higher-rate taxpayer: gross 5.8%, net 4.7%, cash flow £1,712, tax £2,401 → after-tax loss of about £690. Yield looks fine; the tax makes it marginal.
Frequently asked questions
What is a good rental yield in the UK?
Gross 5–6% is typical nationally; 7–9% in parts of the North East and Scotland; 3–4% in London. Below 5% gross rarely works with a mortgage for a higher-rate taxpayer.
What is Section 24?
The rule phased in 2017–2020 that replaced mortgage interest deduction with a 20% tax credit for individual landlords. Companies are unaffected, which is why many landlords incorporate — but that triggers SDLT and CGT on transfer.
Should I buy through a limited company?
Often yes for higher-rate taxpayers with mortgages and a long horizon: full interest deduction, 19–25% corporation tax, but higher mortgage rates, dividend tax on extraction and accountancy costs. Model both.
Do expat landlords pay UK tax on rent?
Yes — UK rental income is always UK-taxable. Register for the Non-Resident Landlord Scheme to receive rent gross; you still get the personal allowance if you are a UK/EEA national.