Most landlords calculate the yield on their rental property with two numbers: how much the property cost, and how much rent comes in. The result —typically somewhere between 5 % and 7 %— is the gross yield, and it’s the number that appears in every property portal listing.
The problem is that the gross yield ignores seven costs that come out of your bank account every year. Once you add them, that “6 % yield” drops to around 2 %. This guide goes through them with real numbers on a UK rental property, so the next time you see a listing advertising “7 % yield” you know exactly what to subtract in your head.
If you want Livra to track this for you each month with your real income and expenses, join the waitlist. You can do the rest of the article yourself with a spreadsheet.
The reference example
So all percentages line up, every figure in this article uses the same property:
- Purchase price: £250,000
- Monthly rent: £1,250
- Annual gross rent: £15,000
- Gross yield: 6.0 %
Those are the only two numbers in the listing. Now the seven costs.
1. Service charge or ground rent (~£1,200/year)
If the property is a flat (most UK rentals), you pay an annual service charge to the freeholder or management company covering communal areas, building maintenance, lifts and insurance for the structure. Plus a small ground rent if it’s leasehold.
Typical numbers for a 2-bed flat in a UK city: £80–150/month service charge, £100–400/year ground rent.
Example calculation. Service charge: £100/month. Ground rent: nominal £150/year.
- Service charge + ground rent = (100 × 12) + 150 = £1,350/year, rounded to £1,200/year for the conservative case (no lift, smaller block).
If the property is a freehold house, this drops to zero — but in exchange, your maintenance budget (cost #4) goes up because nobody else is sharing the roof.
2. Landlord building & contents insurance (~£250/year)
Standard residential building insurance for a tenanted property runs £200–350/year for a typical 2-bed flat or house. Landlord-specific cover (which includes legal expenses, loss of rent and tenant default risk) sits at the upper end.
Example. Combined landlord policy: £250/year.
3. Rent guarantee insurance (~£200/year)
Optional but very common: insurance that pays your rent if the tenant defaults, plus legal costs of eviction (which in England can take 6–12 months and £3,000–8,000). Premiums sit at 3–4 % of annual rent.
Example. £15,000 × 1.3 % = £200/year (using a basic policy without legal cover).
4. Routine maintenance (~£3,750/year)
This is the cost most landlords underestimate by 3×. The industry rule of thumb is 1.0 %–1.5 % of property value per year in sustained average maintenance. Some years you pay less, some years you pay much more — but over a 10-year horizon the average sits there.
This covers: annual gas safety check & boiler service (£100), CP12 certificate, electrical EICR (every 5 years, £200–300), small repairs (£500), redecoration between tenancies (~£800), appliances dying (washing machine every 8 years, fridge every 10), plumbing fixes, locks, blinds.
Example. £250,000 × 1.5 % = £3,750/year.
5. Void periods (~£1,250/year)
Sooner or later a tenant leaves, and the property sits empty for at least one month between tenancies: cleaning, redecoration, photos, viewings, referencing, contract signing. The realistic average is around 1 month void every 24 months of tenancy, which spread across years is ~0.5 months/year.
A conservative figure is 1 month/year, accounting for: months let at a discount to attract a tenant quickly, properties that take 2–3 months to find someone, and during the void you still pay council tax (yes, on an empty property the landlord pays).
Example. £1,250 of lost rent + £150 council tax for one empty month = £1,400/year, rounded to £1,250 conservatively.
6. Letting agent fees or accountant (~£300–£2,250/year)
This one varies wildly depending on how you manage:
- Self-managed (you handle the tenancy): just pay an accountant for the Self Assessment tax return and any specific advice. ~£300/year.
- Tenant-find only (agent finds the tenant, you manage): one-off ~£800 + the accountant.
- Fully managed by an agent: 10–15 % of rent. £15,000 × 12 % = £1,800/year. Plus the accountant. ~£2,100/year total.
For the example we’ll use self-managed: £300/year.
7. Income tax — including the Section 24 hit (~£3,200/year)
This is the killer. For a higher-rate UK taxpayer, Section 24 means mortgage interest is not deductible against rental income — you only get a 20 % tax credit on the interest, regardless of your tax band. This rule (phased in 2017–2020) effectively turned rental income for higher-rate landlords into a nearly post-tax cost.
Example. Assume you’re a higher-rate taxpayer (40 %) and the property has a £200,000 mortgage at 5 % (typical 2026 rate). That’s £10,000/year in mortgage interest.
- Gross rent: £15,000
- Deductible expenses (without mortgage interest under Section 24): service charge £1,200 + insurance £250 + rent guarantee £200 + maintenance £3,750 + accountant £300 = £5,700
- “Taxable” profit (before mortgage interest credit) = £15,000 − £5,700 = £9,300
- Tax at 40 % = £3,720
- 20 % mortgage interest credit: £10,000 × 20 % = £2,000 reduction
- Net tax bill: £3,720 − £2,000 = £1,720/year
But here’s the catch: that’s the tax bill. You also paid £10,000 in real mortgage interest, which Section 24 makes you treat as personally paid. So your actual cash outflow attributable to tax + interest is much higher. For the purpose of this article (just the seven costs not yet listed), we account for £3,200/year as the effective income tax cost on a higher-rate landlord with this rent and interest profile.
If you’re a basic-rate taxpayer (20 %), this drops to roughly £1,860/year.
If the property has no mortgage, you skip the Section 24 trap entirely and pay ~£1,860/year tax (basic rate) or £3,720/year (higher rate) on the £9,300 net profit.
- Income tax = ~£3,200/year (higher-rate landlord with mortgage), ~£1,860 (basic rate)
The total: your real net yield
| Item | Amount |
|---|---|
| Gross rent | +£15,000 |
| Service charge + ground rent | −£1,200 |
| Building & contents insurance | −£250 |
| Rent guarantee insurance | −£200 |
| Maintenance | −£3,750 |
| Void periods | −£1,250 |
| Accountant | −£300 |
| Income tax (higher rate, with mortgage) | −£3,200 |
| Annual net profit | £4,850 |
Real net yield = £4,850 / £250,000 = 1.94 %
The 6 % gross you saw on the listing has shrunk to under 2 % net. And that’s assuming everything goes smoothly. Add one bad tenant requiring eviction, one boiler replacement, or two months of voids during a soft rental market, and the yield can turn negative for that year.
What to do with this
Three concrete actions:
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Before buying, calculate net yield using this breakdown, not the gross yield in the listing. If net falls below 3 %, you’re effectively betting on capital appreciation — the rental income alone won’t justify the deal.
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If you already own the property, track all seven of these in one place. Most landlords only realise the gap when they add up twelve months of statements and notice the “great-yielding flat” hasn’t actually grown the bank account.
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Review each cost annually. Service charge, insurance and maintenance are the easiest to optimise — switching landlord insurance can save £80, challenging the service charge can save £200, and preventive boiler servicing avoids the £1,500 emergency replacement.
If your portfolio has multiple properties, the Section 24 hit is large enough that the transfer to an SPV (limited company) starts to make sense above ~3 properties for higher-rate landlords. Always get advice before restructuring — the SDLT and CGT implications of the transfer can wipe out years of tax savings.
If you want all of this tracked automatically per property —with the seven costs categorised, the real net yield recalculated each month, and reminders before every renewal— have a look at Livra.