The Real Cost of Being a Landlord: What the Headline Yield Hides
Property portals advertise gross rental yields of 6% or 7%. After tax changes, fees and void periods, the real number is often less than half that.
By Firoz Khan|1 May 2026|Updated 20 September 2026|7 min read
Property listing sites quote gross yield because it is the biggest, most flattering number available, not because it tells you anything close to what you will actually keep. Section 24 changed the tax maths for landlords significantly, stamp duty surcharges add a substantial upfront cost, and a long list of running expenses gets left off the spreadsheet entirely. Here is the full cost stack, worked through with real numbers, so you can see what a property actually nets you, not what it appears to yield on the portal listing.
Section 24: why you can no longer deduct full mortgage interest
Before Section 24 was phased in, landlords deducted their full mortgage interest from rental income before calculating tax, the same as any other business expense. Now landlords instead receive a 20% tax credit on mortgage interest, regardless of their tax band. For basic-rate taxpayers this makes little practical difference, but for higher and additional-rate taxpayers it can push their effective tax rate on rental profit well above their normal income tax band, because they are taxed on rental income before interest is deducted, then given only a 20% credit back.
A worked example of the Section 24 effect
Suppose a higher-rate taxpayer earns £15,000 in rent and pays £8,000 in mortgage interest, leaving a true cash profit of £7,000. Under the old rules, they would be taxed at 40% only on that £7,000 profit, a bill of £2,800. Under Section 24, HMRC treats the full £15,000 as taxable income, applies 40% tax to get £6,000, then subtracts a 20% credit on the £8,000 interest, which is £1,600. The final tax bill is £4,400, well above the £2,800 they would have paid under the old system, despite earning the exact same £7,000 in real profit.
Stamp duty surcharge on additional properties
Buying a rental property triggers a 5% stamp duty surcharge on top of standard rates, applied to the whole purchase price. On a £250,000 buy-to-let purchase, that adds £12,500 to the upfront cost compared with buying the same property as your only home. This is a one-off cost, but it needs including in any yield calculation that claims to reflect your actual return on capital, since it is money you had to put in before earning a penny of rent.
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Letting agent fees and landlord insurance
A full management service from a letting agent typically costs 10% to 15% of monthly rent, covering tenant sourcing, rent collection and day-to-day management. On £1,200 monthly rent, that is £120 to £180 a month, or up to £2,160 a year. Landlord insurance, which covers buildings, contents in furnished lets and loss of rent, typically runs £150 to £350 a year depending on the property, well above a standard homeowner policy because it covers risks specific to letting.
Safety certificates you cannot skip
A landlord gas safety certificate is a legal requirement every year for any property with gas appliances, costing roughly £60 to £120. An Electrical Installation Condition Report, required at least every five years, typically costs £150 to £300. An Energy Performance Certificate, valid for 10 years, costs around £60 to £120. None of these are optional, and letting a property without a valid gas safety certificate can result in a fine or prosecution, not just an administrative inconvenience.
Void periods and maintenance you have to budget for
Even well-managed properties sit empty between tenancies, and a realistic assumption is 2 to 4 weeks of void period a year, during which you receive no rent but still pay the mortgage and any standing costs. On top of that, a maintenance reserve of around 1% of the property's value per year is a common rule of thumb for boiler servicing, general repairs and periodic redecoration. On a £250,000 property, that is £2,500 a year set aside, whether or not you spend all of it in any given year.
Capital gains tax when you eventually sell
A buy-to-let property does not qualify for Private Residence Relief, the exemption that shields your own home from capital gains tax. When you sell a rental property at a profit, you pay capital gains tax on the increase in value after your annual exempt amount, at rates that depend on your income tax band. On a property that has risen from £250,000 to £350,000, that £100,000 gain is taxable, and for a higher-rate taxpayer this can mean a bill running into the tens of thousands of pounds, a cost that never appears on any yield calculation done at the point of purchase.
Gross yield versus what you actually keep
Take that same £250,000 property earning £15,000 a year in rent, a gross yield of 6%. Strip out £2,160 in agent fees, £2,500 in maintenance reserve, £250 in insurance and certificates, and roughly £900 for a 3-week void period, and you are down to around £9,190 before tax, a net yield closer to 3.7%. Apply the Section 24 tax effect for a higher-rate taxpayer with a mortgage, and the number you actually keep can fall well below 3%, less than half the number advertised on the listing that got you interested in the first place.
A reminder
The FCA risk warning still applies to higher-risk crypto content. Always assess how much risk you are willing to take before buying.
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