How much is your rental property really making?

To find out what your rental property is really making, take the rent you actually received over a period, subtract every operating cost you actually paid, then subtract the full mortgage payment, interest and capital. The result is your cash flow before personal tax. It is usually lower than landlords expect, mainly because of costs that never reached the records and because the capital part of the mortgage is easy to forget.

This guide is for properties you already own and is based on recorded figures. If you are estimating a property you have not bought yet, read how to calculate rental cash flow before buying. Both articles use the same definitions.

The figures to keep separate

• Gross rent: rent charged before any costs.
• Gross yield: annual rent ÷ property value × 100.
• Net yield: (annual rent minus operating costs, excluding the mortgage) ÷ property value × 100. Here, annual rent means rent actually received.
• Cash flow before personal tax: rent received minus operating costs minus the full mortgage payment.
• Capital growth: the change in the property's value. It is not cash unless you sell or refinance.
• Tax: worked out on rental profit using different rules, covered below.

Start with recorded income

Use what you actually received, not what the tenancy agreement says.

• Rent received. Count rent that arrived, not rent that was due. Note any arrears separately, and do not count them until they are paid.
• Agent statements. If an agent collects rent, they usually pay you rent minus their fees. Record the full rent as income and the fees as a cost. Otherwise both figures are understated and you cannot see what management costs you.
• Deposits are not income. A tenancy deposit held in a protection scheme belongs to the tenant. Only an amount you are entitled to keep at the end of a tenancy, for example for damage, should be treated as income.
• Other income. For example, a charge you recharge to the tenant under the tenancy agreement.

Then recorded costs

Go through every payment linked to the property over the same period:

• Letting and management fees, including VAT
• Landlord insurance
• Repairs and maintenance
• Safety checks, servicing and certificates
• Ground rent and service charges
• Council tax and utilities you paid, for example during an empty period
• Accountancy and other professional fees
• Bank charges and other running costs
• Improvements and furnishings (these are cash out, but are treated differently for tax, see below)

The mortgage payment: one payment, two treatments

This is where most confusion comes from. Your lender takes one payment, but the two parts are treated differently depending on the question you are asking.

Your lender's annual mortgage statement normally shows how much of the year's payments was interest and how much reduced the loan. Use it to split the figures.

Why both matter:

• For cash flow, all of the payment left your account, so all of it comes off.
• For tax, GOV.UK states that only the interest element of a mortgage payment can be set against rental income, and capital expenses are not allowable. For individuals, even the interest is not deducted. Under the residential finance cost restriction (often called Section 24), relief for finance costs is given as a tax reduction at the basic rate, currently 20%, worked out on the lowest of finance costs, property profits and adjusted total income.
• From 6 April 2027, the Finance Act 2026 introduces separate property income rates of 22%, 42% and 47%. The government says these apply in England, Wales and Northern Ireland, with powers for the Scottish Parliament and the Senedd to set their own property rates. The Act also changes the finance cost tax reduction to the property basic rate.

The restriction applies to individuals and partnerships, not to companies. If you hold property in a company, see buy-to-let through a limited company.

On repairs and improvements: HMRC's Property Income Manual says replacing parts with broadly equivalent modern materials is usually a repair, while a significant improvement makes the whole cost capital. If you are unsure, ask your accountant.

Look for missing transactions

A calculation is only as good as the records behind it. The most common gaps are:

• Costs paid from a personal account or card, such as an emergency plumber paid on the spot.
• Annual or irregular bills, such as insurance, servicing or a service charge demand, that fall outside the month you are looking at.
• Costs during empty periods, such as council tax and utilities.
• Agent deductions for repairs, inspections or renewals that appear only on the agent statement.
• Mortgage payments taken from a different account to the one where rent arrives.

A simple check: list every regular cost you know the property has, then confirm each one appears in the period. Anything missing either was not paid or was paid from somewhere else.

Worked example

Illustrative example. These figures are invented to show the method. They are not a real landlord, property or case study, and they are not a typical return.

Assumptions:

• One house, owned by an individual, with a capital repayment mortgage
• Period: one tax year, 6 April to 5 April
• Estimated current value: £215,000
• Rent charged: £1,150 a month (£13,800 a year)
• One month empty between tenants, so rent received is £12,650
• Full management at 12% of rent received, including VAT: £1,518
• Insurance £320, gas safety check and boiler service £160, repairs £540, accountant £300
• Found later: £210 of council tax and utilities during the empty month, and £420 for replacing slipped roof tiles, both paid from a personal card
• Mortgage: £744 a month (£8,928 a year). The lender's annual statement shows £4,867 interest and £4,061 capital repaid
• All costs above treated as revenue costs, not improvements

For the same year:

• Gross yield: £13,800 ÷ £215,000 × 100 = 6.4%
• Net yield: (£12,650 minus £3,468) ÷ £215,000 × 100 = 4.3%
• Cash flow before personal tax: £254 for the year, about £21 a month

What the example shows:

• Missing transactions matter. Two payments on a personal card were £630, which cut the year's cash flow from £884 to £254.
• The capital part is real cash out. If you deducted only the interest, the property would appear to make £4,315. The £4,061 difference was cash you paid in the year. It reduced the loan rather than adding to your spendable income.
• Tax works differently. For income tax, the starting point would be rent received minus allowable expenses (£12,650 minus £3,468 = £9,182), with no deduction for interest or capital, and a separate basic-rate tax reduction for the interest. Tax depends on your other income, so it is not calculated here. Speak to a qualified tax adviser or accountant.
• Capital growth is separate. Any change in the £215,000 value is not part of this year's cash flow.

A monthly routine that keeps the numbers honest

• Record rent received against each property, not rent due.
• Record agent fees separately from rent.
• Move property costs onto one account or card where you can.
• Keep receipts for anything paid personally, and add them straight away.
• Split mortgage interest and capital once a year using the lender's statement.
• Compare each property on the same basis: rent received, operating costs, full mortgage payment.

Our landlord tax return checklist covers the records you will need at the end of the tax year. If you are still working from a spreadsheet, see portfolio tracking versus spreadsheets.

How PROXERA can help

A free PROXERA account lets you record each property with its rent, costs and mortgage, and see performance across your portfolio in one place. Adding income and costs as they happen makes missing transactions easier to spot before the end of the year. For a quick check of one property, the rental yield calculator works out yield from value, rent, mortgage payment and running costs.

Create a free PROXERA account and add your income and costs

For more on running and reviewing your rentals, see our guide for local landlords.