Most London buy to lets are not making the money the rent suggests. Once you count mortgage interest, maintenance, service charges, insurance, management fees, voids and the tax on top, many landlords are earning a true cash return of 1 to 3 percent on the money they actually have tied up, not the 5 or 6 percent the headline rent implies. The only way to know your own number is to work out your true cash return, not your rental yield.
Key Takeaways
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True cash return on a buy to let is the actual profit left after mortgage costs, maintenance, insurance, management fees, void periods and tax, measured against the real cash you have invested, including deposit, fees and refurbishment, rather than against rent or property value alone.
Why Might Your Buy to Let Not Be Making the Money You Think?
The rent lands in your account every month, the mortgage gets paid, and on paper that feels like a working investment. This is the trap almost every landlord falls into at some point. Rent minus mortgage is not profit, and it is certainly not your true cash return. It is simply the smallest slice of the picture, the part that happens to be visible on a bank statement.
We regularly see London landlords who have owned a property for years and have never actually sat down and worked out what it is earning them against the cash they put in. They know the rent. They know roughly what the mortgage costs. Everything else, maintenance, service charges, insurance, management fees, void periods, and the tax bill, gets absorbed into general life spending rather than tracked against the property itself. The result is a landlord who feels like they are breaking even or doing reasonably well, when the true cash return tells a very different story. This is not unusual. The English Private Landlord Survey 2024, published by the Ministry of Housing, Communities and Local Government, found that just under half of all landlords own a single rental property, most running it alongside other work rather than as a full time business, which helps explain why full cost tracking often slips.
What Is Really Coming Out of Your Rental Income Before You See a Penny?
A true cash return calculation starts by being honest about every cost the property carries, not just the mortgage. For most London and Essex landlords, that list includes the following.
| 1. | Mortgage costs. Not just interest, but any capital repayment element on a repayment mortgage, and the higher cost you would face if your fixed rate ended tomorrow. |
| 2. | Maintenance. Not only emergency repairs, but the annual boiler service, redecoration between tenancies, and the slow wear on a property that eventually needs a new kitchen or bathroom. |
| 3. | Service charges. Relevant for flats and leasehold property, and often rising well ahead of general inflation across London blocks. |
| 4. | Insurance. Landlord buildings and contents cover, plus rent guarantee or legal expenses cover if you carry it. |
| 5. | Management fees. Typically a percentage of rent if you use an agent, plus separate charges for finding tenants and renewing contracts. |
| 6. | Voids. The weeks or months between tenancies when no rent is coming in at all, which most landlords underestimate badly. |
| 7. | Tax. Income tax on rental profit, calculated after the Section 24 restriction rather than before it, which we explain below. |
| 8. | Cash and equity tied up. Your deposit, purchase costs and any refurbishment spend, plus the equity that has built up since you bought, none of which is working for you unless the property is producing a return on it. |
Every one of those items reduces your true cash return. Miss two or three of them, which is extremely common, and the number you believe your property is earning can be double or triple the number it is actually earning.
Why Do So Many Landlords Miss This?
It is rarely carelessness. Most landlords are busy running a business, a family, or both, and a rental property is meant to be a relatively passive investment. The gap usually comes down to a handful of habits.
| 1. | Costs are tracked in a bank account alongside personal spending, so nothing is separated cleanly enough to calculate a true return. |
| 2. | Maintenance is treated as a one off cost each time, rather than an annual average that should be budgeted for every year, void or not. |
| 3. | The mortgage interest tax relief changes since Section 24 are still calculated on the old basis in the landlord’s head, even though HMRC has moved on. |
| 4. | Capital growth is used to justify a weak cash return, without checking whether that growth is realistic or whether it can actually be accessed without selling. |
What Does This Look Like on a Real London Property?
Take a one bedroom flat in East London bought for 380,000 pounds with a 25 percent deposit, plus stamp duty and legal costs, putting roughly 115,000 pounds of cash into the deal. Rent comes in at 1,650 pounds a month, or 19,800 pounds a year, which looks like a healthy gross yield of just over 5 percent.
| Item | Annual figure |
| Rental income | 19,800 |
| Mortgage interest (65 percent LTV, interest only) | minus 10,600 |
| Maintenance and repairs allowance | minus 1,200 |
| Service charge and ground rent | minus 1,800 |
| Insurance | minus 300 |
| Management fee at 12 percent of rent | minus 2,376 |
| Void allowance (three weeks) | minus 950 |
| Cash flow before tax | 2,574 |
| Income tax, after Section 24 restriction, higher rate taxpayer | minus 1,660 |
| True cash return after tax | 914 |
Against 115,000 pounds of cash invested, 914 pounds of true after tax cash return works out at under 1 percent. Not the 5 percent headline yield the landlord thought they were earning. This is a simplified illustration to show the scale of the gap, not a template for your own figures, since every property, mortgage rate, tax position and ownership structure changes the outcome.
What Are the Warning Signs Your Return Is Weaker Than It Looks?
| 1. | You have not reviewed your fixed rate mortgage renewal cost against current rates, and assume it will remain what it was when you bought. |
| 2. | You cannot say, without checking, what your Section 24 tax charge was on last year’s Self Assessment return. |
| 3. | You have owned the property for years without ever recalculating your return against its current, higher, equity value. |
| 4. | Maintenance spending is unpredictable and tends to arrive as a shock rather than something you had already budgeted for. |
| 5. | You are holding the property mainly because selling feels complicated, rather than because the numbers still make sense today. |
Any one of these on its own is common. Two or more together are usually a sign that your true cash return has drifted a long way from what you assume it to be.
Rental Yield or True Cash Return, What Is the Difference?
These are three different measurements, and confusing them is where most of the false confidence comes from.
| Measure | What it is measured against | What it tells you |
| Gross rental yield | Annual rent divided by property value | A quick comparison tool, ignores every cost and the mortgage entirely |
| Net yield | Rent minus running costs, divided by property value | Closer to reality, but still measured against value rather than the cash you invested |
| True cash return | All costs and tax, divided by the actual cash invested | What the property is really earning you on the money you put in |
| Return on equity | Annual cash return divided by current equity, not original cash | Whether your growing equity is still working hard, or sitting idle in the property |
Return on equity is the measure most landlords never look at. As a property grows in value and the mortgage balance falls, the equity locked inside it grows too, but the rental profit does not grow at the same pace. A property that looked strong on cash on cash return when you bought it can become a weak use of capital five or ten years later, once you compare the profit against what that equity could be doing elsewhere in a restructured portfolio.
How Does Section 24 Change Your True Return as a London Landlord?
Section 24 of the Finance (No. 2) Act 2015 removed the ability for individual landlords to deduct mortgage interest as an expense before calculating taxable profit. Instead, tax is charged on rental income before finance costs, and landlords receive a tax credit worth only the basic rate, 20 percent, of their finance costs. For a higher or additional rate taxpayer, this can turn a modest cash surplus into a much smaller true return, or in some highly leveraged cases, a loss, even while the property is still generating positive cash in the bank each month.
This is one of the biggest reasons true cash return and gross rent diverge so sharply for leveraged London landlords. Our rental accounts service works through the Section 24 position property by property, since the impact depends heavily on your income tax band, your loan to value, and whether the property is held personally or through a company.
Is Making Tax Digital Going to Change How You Report This?
Yes, and the change is already underway. From 6 April 2026, individual landlords and sole traders with qualifying gross income over 50,000 pounds must use Making Tax Digital for Income Tax, keeping digital records and sending quarterly updates to HMRC instead of a single annual Self Assessment return. That threshold drops to 30,000 pounds from 6 April 2027, and to 20,000 pounds from 6 April 2028, bringing many more London landlords with two or three properties into scope over the next two years, as set out on GOV.UK’s Making Tax Digital for Income Tax pages.
If your true cash return calculation shows a weaker position than expected, MTD is a useful forcing function. Quarterly digital records make it far harder to lose track of the costs that quietly erode your return, because everything has to be entered as it happens rather than reconstructed from memory at the end of the year.
Personal Ownership or an SPV, Which Protects Your Return Better?
A Special Purpose Vehicle, or SPV, is a limited company set up purely to hold rental property. Because it pays corporation tax rather than income tax, an SPV is not affected by the Section 24 restriction and can still deduct mortgage interest in full before calculating taxable profit. For higher rate taxpayers with several properties, this often improves the true cash return significantly, though it brings its own costs, including corporation tax, potential dividend tax on money taken out, and different mortgage products with typically higher rates. Whether an SPV genuinely improves your true cash return depends entirely on your own numbers, not a general rule. Our SPV accountants in London model this comparison against your actual portfolio before you commit to restructuring anything.
So What Is Your Portfolio Actually Telling You?
By now you can probably see the shape of the problem, even if you cannot yet put an exact number on your own true cash return. Maybe the mortgage renewal is going to hurt more than you have budgeted for. Maybe Section 24 is taking a bigger bite than you realised. Maybe the equity sitting in a property you bought a decade ago is no longer working as hard as it once was. Knowing that something is off is the easy part. Knowing exactly what is driving it, and what to actually do about it, is where most landlords need a second pair of eyes on the real figures rather than a rule of thumb.
That is exactly what a Business Health Review with GM Professional Accountants is built for, looking at your actual rent, costs, mortgage position and tax bill property by property, and telling you plainly where your true return stands and what your options are.
Written by Sharaz Zaman, Founder of GM Professional Accountants, AAT Member with 15+ years London accounting experience. Updated September 2026 |
Frequently Asked Questions
What is true cash return on a buy to let, and how is it different from rental yield?
True cash return is your annual profit after every running cost and tax, measured against the actual cash you invested, including deposit, purchase costs and any refurbishment. Rental yield only measures rent against property value and ignores the mortgage, costs and tax entirely, which is why the two figures can look very different on the same property.
Why does my buy to let feel unprofitable even though the rent covers the mortgage?
Rent covering the mortgage only accounts for one cost. Maintenance, service charges, insurance, management fees, void periods and the tax due after the Section 24 restriction all come out of the same rental income, and together they can turn a property that looks fine month to month into a weak true return once totalled up.
How does Section 24 reduce my true return as a London landlord?
Section 24 stops individual landlords deducting mortgage interest as an expense, replacing it with a tax credit worth only 20 percent of the finance cost. For higher and additional rate taxpayers, this means tax is charged on income the landlord never actually receives as profit, which can significantly reduce the true cash return on a leveraged property.
Does Making Tax Digital affect landlords, and when?
Yes. From 6 April 2026, landlords with qualifying gross income over 50,000 pounds must use Making Tax Digital for Income Tax, with the threshold dropping to 30,000 pounds from 6 April 2027 and 20,000 pounds from 6 April 2028, bringing progressively more landlords with smaller portfolios into digital quarterly reporting.
Should I hold my rental property personally or through an SPV?
It depends on your income tax band, how leveraged the property is, and how many properties you hold. An SPV can restore full mortgage interest relief and often improves the true cash return for higher rate taxpayers, but brings corporation tax, dividend tax and different mortgage terms, so the comparison needs to be run against your actual figures rather than assumed.
How can I find out what my portfolio is really earning?
The only reliable way is to work through the actual rent, costs, mortgage position and tax bill for each property individually, which is what a Business Health Review with a specialist property accountant is designed to do, rather than relying on a general rule of thumb or an online calculator built for a different tax system.
Find Out Your Property’s True Cash Return GM Professional Accountants works with landlords and property investors across London and Essex, reviewing the real numbers behind a portfolio, not just the headline rent.
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GM Professional Accountants serves landlords and property investors across London and Essex, with offices in Old Street, Wimbledon and Loughton. If you are also planning a sale, remember that HMRC requires any Capital Gains Tax on a UK residential property to be reported and paid within 60 days of completion, not at the following Self Assessment deadline. Our earlier guide on when VAT applies to property sales in London and our Capital Gains Tax accountants page cover the exit side, while our landlord tax return service keeps your Self Assessment or MTD filings compliant every year.
This article is for general information only and does not constitute personal financial, tax or investment advice. Every landlord’s position is different. Please speak to a qualified accountant before making decisions based on the figures shown here.
