Methodology

Why publish this?

Most property calculators are black boxes - you type numbers in, a verdict comes out, and you have no way to check the working. Simple Yield takes the opposite view: an estimate is only useful if you can see how it was produced. This page sets out every calculation the tool performs. Each one is also covered by an automated test suite that runs before any change to the site is deployed.

1. Rental income and voids

Gross annual rent is monthly rent × 12. The void rate you set removes a percentage of the year's rent to reflect empty periods: effective rent = gross rent × (1 − void rate). The industry rule of thumb is 8%, roughly one empty month per year.

Costs are applied the way agents actually charge: the maintenance reserve is a percentage of gross rent (you budget for repairs whether or not the property is let), while the management fee is a percentage of effective rent (agents only charge on rent they collect). Fixed costs - service charge, ground rent, buildings insurance - are annual amounts.

2. Mortgage

Interest-only: the monthly payment is loan × monthly rate; nothing is repaid. Repayment: the payment uses the standard annuity formula P = L·r(1+r)ⁿ / ((1+r)ⁿ − 1) over the full term. The Year 1 interest figure - which drives the tax calculation - is computed precisely by iterating all twelve months, because the interest portion falls slightly each month as capital is repaid.

Yields: gross yield = gross rent ÷ purchase price. Net yield = (effective rent − operating costs) ÷ purchase price - before finance and tax, so two properties can be compared regardless of how they are financed.

3. Personal ownership - Section 24

Since April 2020, individual landlords cannot deduct mortgage interest from rental income. Simple Yield applies the current rules:

• Taxable profit = effective rent − operating costs (interest is not deducted)
• Gross tax = taxable profit × your marginal rate (20% / 40% / 45%)
• Tax credit = 20% × the lower of mortgage interest and taxable profit - the statutory cap in s274A Income Tax Act 2007. Where interest exceeds profit, the credit is limited to 20% of profit and the excess carries forward
• Net tax = gross tax − credit, floored at zero

Simplifications: you choose your marginal band - we do not model your full income, the personal allowance, or rental profit pushing you into a higher band. The carry-forward of unused credit and the adjusted-total-income leg of the statutory cap are not modelled. Source: GOV.UK - relief for residential landlords.

4. Limited company ownership

Inside a company, mortgage interest is a business expense: taxable profit = effective rent − operating costs − interest, taxed at the corporation tax rate you select (19% small profits / 25% main rate; marginal relief between £50k and £250k profit is not modelled).

The Profit Strategy toggle then decides what the figures mean. Retain in company: cash flow is profit kept in the company - no further personal tax now, but you can't spend it personally. Draw as dividends: the year's cash flow is extracted as dividends and dividend tax at your income band is deducted, so every figure - including the stress test, break-even rate and 10-year projection - shows money in your pocket.

Dividend tax uses 2026/27 rates (in force from 6 April 2026): £500 allowance, then 10.75% (basic), 35.75% (higher) or 39.35% (additional). Simplifications: the whole draw is taxed at your selected band (no band-spanning, and the draw itself is not modelled as pushing you into a higher band); the full allowance is assumed available; salary or pension extraction routes are not modelled. Source: GOV.UK - tax on dividends.

5. Land transaction tax - SDLT, LBTT, LTT

The UK has three regimes, decided by where the property sits. Simple Yield detects the country from your postcode and applies the right one. All three are “slice” taxes - each rate applies only to the portion of the price inside its band:

• England & Northern Ireland - SDLT (rates from 1 April 2025): 5% additional-dwelling surcharge added to every band; first-time buyer relief up to £500k. GOV.UK
• Scotland - LBTT (bands from April 2021): the Additional Dwelling Supplement is a flat 8% of the whole price (from 5 December 2024, on purchases of £40k+); first-time buyer relief raises the nil band to £175k. Revenue Scotland
• Wales - LTT (main rates from October 2022, higher rates from 11 December 2024): additional properties use a separate higher-rate band table, and Wales has no first-time buyer relief. GOV.WALES

Limited company purchases always incur the additional-dwelling surcharge and never qualify for first-time buyer relief. The 15% flat SDLT rate on company purchases above £500k does not apply to property rental businesses, so banded rates are used.

6. ICR, stress test, and break-even rate

Interest coverage ratio = effective rent ÷ annual mortgage interest, checked against the 125% (basic-rate borrower) and 145% (higher-rate / Ltd Co) thresholds most BTL lenders apply. The stress test reruns the entire analysis at +1% and +2% interest rates - nothing is approximated.

The break-even rate finds where post-tax cash flow crosses zero, by bisection over the full calculation. Cash flow falls strictly as the rate rises (each £1 of extra interest costs £1 of payment and returns at most 25p in tax relief), which is what makes the search valid.

7. Rent benchmarks

Average rents by bedroom count come from the ONS Price Index of Private Rents (PIPR), the official UK rent statistic, updated monthly. Geography differs by nation because that is how the statistics are published:

• England & Wales: your local authority - the most precise level available
• Scotland: your Broad Rental Market Area, resolved from the postcode district using Rent Service Scotland's official allocation. A small number of postcode districts straddle a BRMA boundary, so treat these as area benchmarks, and they are labelled as such
• Northern Ireland: the national average - the only NI geography in PIPR, which also lags Great Britain by around two months. Labelled as a national average in the tool

Figures are mean averages, shown with their source month. A few areas (for example the City of London) are suppressed in the source data for having too few rentals - the tool says so rather than guessing.

8. The 10-year projection

Assumptions, all visible in the tool:

• Rent and property value compound annually at the rates you set, from the original figures
• The mortgage rate, void rate, and cost percentages stay constant
• Fixed costs (insurance, service charge, ground rent) do not inflate - a mild understatement of later-year costs
• Tax is recalculated each year against that year's inflated income, using the same Section 24 / corporation tax logic as Year 1
• Repayment mortgages amortise using the standard formula; interest-only balances stay constant

9. What we deliberately don't model

• Salary or pension extraction from a limited company - only the dividend route is modelled (see section 4)
• Capital gains tax or corporation tax on sale - the projection shows equity, not post-sale proceeds
• Your wider income: personal allowance, band thresholds, child benefit clawback, student loans
• Carry-forward of unused Section 24 credit; marginal relief between corporation tax rates
• Remortgaging, fees on refinance, or rate changes over the hold period beyond the stress test
• Purchase-specific reliefs (multiple dwellings, mixed-use, non-resident surcharge)

These are listed so you can judge when they matter for your case. When one of them is significant for you, that is precisely when to involve an accountant.

10. Verification

The calculation engine is pure, deterministic code covered by an automated test suite - band maths checked against hand-worked examples from the official rate tables, Section 24 capped and uncapped cases, annuity formulas, break-even bracketing, and the rent benchmark routing for all four nations. The suite runs on every change before it can be deployed. Found a figure you believe is wrong? Email hello@simpleyield.co.uk - we treat calculation reports as the highest-priority issue.