What is rental yield?

Gross yield is a year’s rent divided by the price: £15,000 of rent on a £250,000 property is 6%. Net yield takes off running costs such as agent fees, repairs and insurance first, so it’s always lower. Neither includes the mortgage, so the cash flow figure is the one that shows what you’d actually keep.

What is Section 24 and how does it affect landlords?

It’s the rule that stops individual landlords deducting mortgage interest from their rental profit. Instead, you pay income tax on the rent minus other costs, then get a tax credit of 20% of the interest (22% from April 2027). Basic-rate taxpayers end up roughly where they were, but higher-rate taxpayers pay noticeably more, and the extra profit can push some people into a higher tax band.

Is it better to buy through a limited company?

It depends on your tax rate and plans. A company deducts all its mortgage interest and pays Corporation Tax (19% to 25%) instead of income tax, which can suit higher-rate taxpayers who leave profits in the company. But company mortgages can cost more, a company has running costs, and you pay dividend tax when you take money out. The comparison above shows both for your numbers; talk to an accountant before you decide.

How much stamp duty is there on a buy-to-let?

In England and Northern Ireland, buying another residential property usually means Stamp Duty Land Tax plus a 5% surcharge on the whole price: on £250,000 that’s £15,000 instead of £2,500. Scotland adds an 8% Additional Dwelling Supplement to LBTT, and Wales has its own higher rates of Land Transaction Tax. Companies pay these extra rates too.

What changes for landlords in April 2027?

From 6 April 2027, property income in England, Wales and Northern Ireland gets its own tax rates: 22%, 42% and 47%, two points higher than on salaries. The credit for mortgage interest rises to 22%. Property income is also taxed after your other income, so it’s more likely to fall in a higher band. The calculator applies these rules from year 2.

Do I pay tax when I sell a buy-to-let?

Usually yes: Capital Gains Tax on the rise in value, at 18% within your basic-rate band and 24% above it, after a £3,000 yearly allowance. You can take off what you paid for the property, including stamp duty and legal fees, and the costs of selling. You must report and pay it within 60 days of the sale.

How much deposit do I need for a buy-to-let?

Buy-to-let lenders usually want a bigger deposit than for a home you live in, often 25% or more. The rent also limits what you can borrow: the lender test above shows the most this rent would support.

Buy-to-Let Calculator (UK)

Measure	In your name	Limited company
Cash you need	£80,100	£80,100
Year 1: cash to you after tax	£118 a month	£0 a month
Year 1: cash the company earns after its tax	–	£30 a month
Year 1: tax	£154	£0 Corporation Tax
Year 2: cash to you after tax	£113 a month	£0 a month
After 10 years and a sale: total gain	£67,214	£61,895*
Return per year on your cash	6.7%	6.0%*

	Year 12026 to 2027	Year 22027 to 2028
Rent collected	£14,423	£14,856
Running costs	−£3,385	−£3,486
Taxable profit	£11,038	£11,370
Income tax on it	£2,361	£2,721
Credit for mortgage interest	−£2,208	−£2,179
Tax to pay	£154	£542

What this calculator works out

A buy-to-let is a property you buy to rent out. The headline numbers people quote, like the rental yield, leave out most of what decides whether it pays: the mortgage, the running costs, the empty weeks between tenants, and tax. This calculator puts all of them together and shows what you’d actually keep each month, what it costs to buy, whether a lender is likely to lend, and what the whole investment could return if you sold later.

It follows the rules in each part of the UK: Stamp Duty Land Tax in England and Northern Ireland, Land and Buildings Transaction Tax in Scotland, and Land Transaction Tax in Wales, plus income tax for Scottish and non-Scottish taxpayers.

How landlords are taxed

If you own the property yourself, the rent is added to your other income and taxed at your usual rates. You can take off running costs, such as the letting agent, repairs and insurance, but not your mortgage interest. Since 2020 that interest only earns a tax credit of 20% of its cost (this rule is often called Section 24). For a basic-rate taxpayer the credit roughly matches the tax the interest would have saved; for a higher-rate taxpayer it covers only half, so the same property leaves them less.

From 6 April 2027, property income in England, Wales and Northern Ireland will be taxed at its own rates of 22%, 42% and 47%, and the credit for mortgage interest rises to 22%. Property income will also count after your salary, so more of it can fall into a higher band. The calculator uses these rules from year 2, which is why your tax often rises in the second year even before rents change.

In your name or through a limited company?

A limited company can deduct all its mortgage interest, and it pays Corporation Tax on its profits: 19% on profits up to £50,000, rising to 25% from £250,000. That can leave more profit to reinvest. But the money is the company’s, not yours: taking it out as dividends means paying dividend tax, and company buy-to-let mortgages can cost more. A company also pays the additional-property rates of purchase tax even if you don’t own a home.

The comparison in the results runs both side by side for your numbers, with the company paying its profits to you as dividends each year. It leaves the sale money inside the company, because how much tax you pay to take it out depends on how and when you do it. That’s a decision to make with an accountant.

Worked example

Say you buy a £250,000 property in England to let at £1,250 a month, with a £62,500 deposit and an interest-only mortgage at 5%. You already own your home and earn £40,000 a year.

Upfront: £15,000 of stamp duty at the additional-property rates, so £80,100 in cash with the deposit and fees.
Year 1: after 2 empty weeks you collect £14,423 of rent. Running costs take £3,385 and mortgage interest £9,475, leaving £1,564 before tax.
Tax: income tax is charged on £11,038 (the rent minus running costs, but not the interest), then a £2,208 credit for the interest comes off. You pay £154 and keep £1,410, about £118 a month.
Year 2: with the April 2027 property rates the tax rises to £542, even though the rent grew.
A company instead: it would pay £15,000 of stamp duty too, deduct all its interest, and pay Corporation Tax. Over 10 years and a sale, you’d gain £61,895 through the company (before taking the sale money out) against £67,214 in your own name.

The yield looks healthy at 6.0%, but the cash you keep is small: most of the rent goes on the mortgage and costs. That’s typical, and it’s why the price growth you assume matters so much to the final result.

Will a lender lend?

Buy-to-let lenders mostly judge the rent, not your salary. They check that the rent covers the mortgage interest with room to spare, usually by 125% for companies and basic-rate taxpayers and 145% for higher-rate taxpayers. They test it at a higher rate than you’ll pay: the Bank of England expects them to assume at least 5.5%, or your rate plus two points if that’s higher, unless you fix for five years or more. If the rent fails the test, you’ll need a bigger deposit, which the calculator shows as the most this rent could support.

Before you buy

Try the numbers with less rent, more empty weeks and a higher rate: the “If things change” box shows how quickly a small monthly profit can become a loss. In the worked example, most of the total gain comes from the property’s value rising rather than the rent, so try a lower growth rate too. Compare the result with what the same cash could earn elsewhere with no tenants to manage; our index investing calculator shows how a spread-out investment has done over time.