Originally published 22 May 2025. Educational update checked 24 October 2026.
Rental yield is a simple percentage that compares rent with a property’s purchase price or estimated value. It can help describe one part of a property’s finances, but it is not a measure of profit, cash flow or the return an investor will actually receive.
The gross-yield formula is: annual rent ÷ property price × 100. For example, if a property costs £250,000 and the expected rent is £1,250 a month, annual rent would be £15,000. Dividing £15,000 by £250,000 gives 0.06; multiplied by 100, the gross yield is 6%. This is an illustration using assumed figures, not a forecast or a recommendation.
Gross yield leaves out costs. A simple net-yield estimate can subtract selected annual operating costs from annual rent before dividing by the same property price. If the example had £4,000 of assumed annual running costs, the result would be (£15,000 − £4,000) ÷ £250,000 × 100, or 4.4%. The figure changes depending on which costs are included. State the method whenever comparing properties; otherwise two percentages may not be comparable.
A rental-yield calculation is not the same as monthly cash flow. Cash flow also depends on when rent arrives and bills are paid, mortgage payments, void periods and one-off costs. It is not the same as return on investment either: that comparison may use the cash invested, borrowing, acquisition costs and eventual sale proceeds. A property with a higher headline yield can still have higher costs, more vacancy risk or a lower resale value.
For tax, use HMRC guidance rather than treating every payment as an allowable expense. For residential property owned by an individual, mortgage finance costs are subject to a restriction: they are not generally deducted in full when calculating taxable rental profits; qualifying finance costs may instead receive a basic-rate tax reduction under the rules. Allowable day-to-day expenses, capital improvements, company ownership and other arrangements can be treated differently. A yield spreadsheet should not substitute for tax advice or a proper tax calculation.
When comparing a potential let, write down the rent assumption, valuation basis, costs included and period covered. Test more than one rent and cost scenario, and check local evidence rather than relying on a national “good yield” threshold. This educational calculation cannot predict future rents, costs, tax or property values. Get independent financial and tax advice before making a decision.
Takeaway
Gross yield is annual rent divided by price. Net yield depends on the costs you choose to count. Neither percentage alone tells you whether a property is suitable or profitable.