Calculate Your Return on Investment
📊 Your Investment Returns
Compare two investments side-by-side to see which performs better.
Investment A
Investment B
📊 Comparison Results
Calculate rental yield and total ROI for UK buy-to-let properties.
🏠 Property Investment Returns
What is ROI (Return on Investment)?
Return on Investment (ROI) is a fundamental financial metric used to evaluate the efficiency and profitability of an investment. It measures the gain or loss generated relative to the amount invested, expressed as a percentage. ROI is essential for UK investors comparing stocks, property, ISAs, pensions, and business ventures.
ROI is widely used by UK investors for:
- Comparing investment options: ISAs vs. bonds vs. property
- Evaluating business decisions: New equipment, marketing spend, expansion
- Tracking portfolio performance: Stocks and shares ISA growth
- Assessing property investments: Buy-to-let rental yields and capital gains
- Measuring pension growth: SIPP and workplace pension performance
The Basic ROI Formula
Annualized ROI Formula
For investments held over multiple years, annualized ROI standardizes returns to a yearly basis, allowing fair comparison between investments of different durations:
💡 Why Annualized ROI Matters
A 50% return over 5 years (8.45% annualized) is actually lower than a 30% return over 2 years (14.02% annualized). Always compare annualized returns for investments held for different time periods.
UK Investment ROI Benchmarks 2025
Understanding typical returns helps set realistic expectations and compare your investments:
| Investment Type | Typical Annual ROI | Risk Level | Tax Treatment |
|---|---|---|---|
| Stocks & Shares ISA | 7-10% | Medium-High | Tax-free |
| Cash ISA | 4-5% | Very Low | Tax-free |
| Buy-to-Let Property | 5-8% yield + growth | Medium | Income Tax + CGT |
| UK Government Bonds (Gilts) | 4-5% | Low | Interest taxable |
| FTSE 100 Tracker | 7-8% | Medium | CGT/Dividend tax |
| Premium Bonds | 4.00% (prize rate) | Very Low | Tax-free |
| SIPP Pension | 6-10% | Variable | Tax relief on contributions |
📈 Historical Context
The FTSE 100 has delivered an average annual return of approximately 7.5% since 1984, including dividends reinvested. However, individual years can vary dramatically from -30% to +30%. Past performance is not a reliable indicator of future results.
Comparing ROI Across UK Asset Classes
📊 Stocks & Shares
- Higher volatility, higher potential
- Tax-free in ISA wrapper
- Dividends provide income
- Best for 5+ year horizon
🏠 UK Property
- 4-8% rental yield
- 3-5% capital appreciation
- Leverage amplifies returns
- Requires active management
💰 Cash Savings
- Capital guaranteed (FSCS)
- No risk of loss
- May lose to inflation
- Instant access or fixed term
How UK Taxes Affect Your Real ROI
Understanding tax impact is crucial for calculating your true net return on investment:
Capital Gains Tax (CGT) 2025/26
| Rate Band | Basic Rate Taxpayer | Higher Rate Taxpayer |
|---|---|---|
| Main assets (shares, bonds) | 10% | 20% |
| Residential property | 18% | 24% |
| CGT Annual Allowance | £3,000 (2025/26) | |
Dividend Tax 2025/26
| Tax Band | Dividend Tax Rate |
|---|---|
| Basic Rate (£12,571-£50,270) | 8.75% |
| Higher Rate (£50,271-£125,140) | 33.75% |
| Additional Rate (£125,140+) | 39.35% |
| Dividend Allowance | £500 (2025/26) |
💰 Maximizing Tax-Free ROI
- ISA: £20,000 annual allowance, all growth tax-free
- SIPP/Pension: Tax relief on contributions (20-45%)
- CGT Allowance: Use £3,000 annual exemption each year
- Dividend Allowance: First £500 tax-free
Real-World ROI Examples
Example 1: Stocks & Shares ISA
| Initial Investment | £20,000 |
| Final Value (after 5 years) | £32,000 |
| Total Profit | £12,000 |
| Total ROI | 60% |
| Annualized ROI | 9.86% |
| Tax Owed | £0 (ISA tax-free) |
Example 2: Buy-to-Let Property (Leveraged)
| Purchase Price | £250,000 |
| Deposit (25%) | £62,500 |
| Annual Rent (net of costs) | £10,000 |
| Rental Yield (on deposit) | 16% |
| Property Value After 5 Years | £300,000 |
| Capital Gain | £50,000 |
| Total ROI on Deposit (5 years) | 160% |
| Annualized ROI | 21.1% |
⚠️ Property Investment Risks
The leveraged example shows high returns, but property investment carries risks including void periods, maintenance costs, interest rate rises, potential capital loss, and the reduced CGT allowance. Mortgage interest is no longer fully deductible for individual landlords.
Frequently Asked Questions
A "good" ROI depends on the investment type and your risk tolerance:
- Stocks & Shares: 7-10% annually is typical long-term
- Cash Savings: 4-5% is excellent in 2025/26
- Property: 5-8% rental yield plus capital growth
- Pensions: 6-10% depending on fund selection
Any positive ROI above inflation (approximately 2-3%) represents real growth in purchasing power. For higher-risk investments, you should expect higher returns to compensate for the risk.
Annualized ROI converts total returns to a yearly equivalent using this formula:
Annualized ROI = ((1 + Total ROI)^(1/years)) - 1
For example, if you invested £10,000 and it grew to £15,000 over 4 years:
- Total ROI = (15,000 - 10,000) / 10,000 = 0.50 or 50%
- Annualized ROI = ((1 + 0.50)^(1/4)) - 1 = 10.67%
This allows you to compare investments of different durations on a like-for-like basis.
For a true picture of your investment performance, you should consider:
- Nominal ROI: The raw percentage return without adjustment
- Real ROI: Adjusted for inflation to show actual purchasing power gained
Real ROI ≈ Nominal ROI - Inflation Rate
With UK CPI inflation targeting 2%, a 7% nominal return is approximately 5% in real terms. During periods of high inflation (e.g., 10%), a 7% nominal return actually means a 3% loss in real terms.
Rental Yield only measures income return:
Gross Yield = (Annual Rent / Property Value) × 100
ROI includes both income AND capital appreciation:
Property ROI = ((Rent Income + Capital Gain) / Total Investment) × 100
A property with 5% yield but 10% capital growth delivers 15% total ROI. Conversely, a high-yield property in a declining area could have negative total ROI despite rental income.
For accurate ROI, include all associated costs:
- Trading fees: Broker commissions, platform fees, spread
- Taxes: Stamp Duty (shares and property), CGT, Income Tax
- Fund fees: Annual management charges (AMC), platform fees
- Property costs: Mortgage interest, maintenance, insurance, letting agent fees
- Currency costs: FX fees for overseas investments
Using tax-efficient wrappers like ISAs eliminates tax costs and simplifies ROI calculation.
Yes, ROI is negative when your investment loses value. For example:
- Invested: £10,000
- Final Value: £8,000
- Loss: £2,000
- ROI = -20%
Negative ROI can occur with stocks during market downturns, property in declining areas, or failed business investments. It's why diversification across asset classes is important for managing risk.
ROI (Return on Investment): Simple percentage showing total gain/loss
CAGR (Compound Annual Growth Rate): Smoothed annual rate assuming steady growth
They're essentially the same when calculated correctly:
- Simple ROI: 50% over 5 years
- Annualized ROI/CAGR: 8.45% per year
CAGR is more commonly used in investment reports, while ROI is more intuitive for quick comparisons.
For leveraged investments (like mortgaged property), calculate ROI on your actual capital invested, not the total asset value:
ROI = (Net Gain / Your Capital Invested) × 100
Example:
- Property: £250,000 (with 25% deposit = £62,500)
- Property rises to £275,000 (£25,000 gain)
- ROI on full price: 10%
- ROI on your deposit: 40% (leverage amplifies returns)
Remember: leverage works both ways and can amplify losses too.
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Last Updated: December 2025 | Reviewed by qualified investment professionals