A good gross rental yield in the UK is generally considered to be 5% or above, though what constitutes “good” varies significantly by location. In prime London areas, yields of 3–4.5% are common due to high property prices relative to rents. In cities like Manchester, Liverpool, and Leeds, yields of 5–7% are achievable. A net yield (after all costs) of 3%+ is generally considered acceptable. For a buy-to-let investment without a mortgage, most investors target at least 5% gross yield.
Gross rental yield = (Annual Rent ÷ Property Value) × 100. For example, a property worth £200,000 renting at £900/month has a gross yield of (£10,800 ÷ £200,000) × 100 = 5.4%. Net rental yield = ((Annual Rent − Annual Costs) ÷ (Property Value + Purchase Costs)) × 100, where annual costs include management fees, maintenance, insurance, and void periods. Net yield is always lower than gross yield and gives a more accurate picture of real returns.
Gross rental yield is simply annual rent divided by property value — it ignores all costs. Net rental yield deducts all annual running costs (letting agent fees, maintenance, insurance, void periods, mortgage interest) and divides by total invested capital (property value plus purchase costs including stamp duty and legal fees). Net yield is always lower than gross yield and gives a far more accurate picture of actual investment returns. A property with a 7% gross yield might have only a 3–4% net yield after accounting for all costs.
Buy-to-let properties are subject to an additional 3% SDLT surcharge on top of standard residential rates. On a £250,000 BTL property, you’ll pay approximately £10,000 in stamp duty (the 3% surcharge applies across the full price as it falls in the 0% standard band). This increases your total invested capital and directly reduces your net yield. For a property with £12,000 annual net income, adding £10,000 SDLT to the denominator reduces net yield by approximately 0.2–0.4 percentage points.
Buy-to-let remains profitable for many investors in 2025, but margins have compressed significantly. Key challenges include the Section 24 tax change (mortgage interest is no longer fully deductible), the additional 3% stamp duty surcharge, tighter EPC requirements, and higher mortgage rates (4.5–5.5% for BTL in 2025). However, UK rents have risen strongly — the ONS Private Rental Price Index shows rents up 8–9% year-on-year — improving yield for cash buyers and those with lower LTV mortgages. Regional selection is critical: cities like Liverpool, Nottingham and Sheffield offer significantly better yields than London.
Under current UK tax rules, landlords can deduct from rental income: letting agent and management fees, maintenance and repair costs (not improvements), landlord insurance, accountancy fees, advertising, ground rent, council tax and utilities when paid by the landlord. Mortgage interest is no longer fully deductible — instead, landlords receive a 20% tax credit on mortgage interest. Capital expenditure (improvements) is not deductible from income but may reduce capital gains tax on eventual sale. Many higher-rate taxpayer landlords now operate through limited companies to restore full mortgage interest deductibility.