Gross rental yield is calculated by dividing annual rental income by the purchase price and multiplying by one hundred. For example, a property bought for 400,000 pounds that generates 20,000 pounds in annual rent produces a gross yield of five percent. This figure is useful for quick comparisons between properties but does not reflect true profitability.
Net yield deducts all running costs from the annual rent before performing the same calculation. Typical deductions include service charges, buildings insurance, letting agent fees, void periods and maintenance. A flat with high service charges may advertise an attractive gross yield yet deliver a materially lower net yield, which is the figure that most closely represents real-world return.
Tax obligations reduce yield further still, since rental income is subject to income tax or corporation tax depending on the ownership structure chosen. The after-tax return is sometimes called the net-net yield. Buyers should consult a qualified accountant to model their specific position, and check GOV.UK for current rates and allowances before making assumptions.
Overseas investors should ensure their net yield calculation accounts for UK tax obligations and currency fluctuation, both of which can meaningfully erode the return actually repatriated.