The Property Clues Glossary

Every key term, figure and calculation explained in plain English, with a worked example, so you can learn the language of property as you go. Free to use.

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Income & tax

Rental profit (taxable)

The rent you receive, less your allowable running costs. It's what you're actually taxed on, not the rent itself. For individual landlords, mortgage interest is not deducted here (see Section 24).

Example: £14,400 rent − £3,000 costs = £11,400 taxable rental profit, before any mortgage-interest credit.

Section 24

Since 2020, individual landlords can't deduct mortgage interest from rental income. Instead you get a flat 20% tax credit on the interest. For higher-rate taxpayers this can mean paying tax on money that went straight to the lender, and can even push you into a higher band.

Example: £6,000 interest used to cut a 40% taxpayer's bill by £2,400; now the credit is just 20% × £6,000 = £1,200, a £1,200 a year hit.

Allowable expenses

Day-to-day costs you can set against rental income: repairs (not improvements), insurance, letting/management fees, safety certificates, ground rent, service charges and the like. Getting these right lowers your tax bill legitimately.

Example: a £600 boiler repair is an allowable expense; a £6,000 new extension is capital, dealt with at sale.

Capital vs revenue

A revenue cost keeps the property as it is (a repair) and is deductible now. A capital cost improves or adds to it (an extension, a new kitchen where there was none) and is set against your gain when you sell. Mixing them up is a common HMRC flag.

Example: like-for-like replacement of a broken window = revenue; adding a whole new bathroom = capital.

Replacement of domestic items relief

Relief for replacing (not initially buying) movable furnishings in a let home (sofas, beds, white goods, carpets) at like-for-like cost, less anything you sold the old one for.

Example: replacing a worn-out £400 fridge-freezer with a similar £450 one gives roughly £400 of relief (the like-for-like element).

Making Tax Digital (MTD) for Income Tax

HMRC's shift to digital records and quarterly updates plus a final declaration. Phased in by gross qualifying income: over £50,000 from April 2026, over £30,000 from April 2027, over £20,000 from April 2028.

Example: a landlord with £42,000 gross rent isn't in from 2026, but is caught from April 2027 (the £30k threshold).

Capital Gains Tax (CGT)

Tax on the gain when you sell or transfer a property that isn't your main home. Individuals pay 18% (basic rate) or 24% (higher rate) on residential gains, after the annual exempt amount (£3,000). It must be reported and paid within 60 days of completion.

Example: a £62,000 taxable gain for a higher-rate landlord ≈ £14,880 CGT (24%).

Stamp Duty (SDLT) & the surcharge

A tax on buying property in England & Northern Ireland, charged in bands on each slice of the price. Buy-to-lets and second homes pay a 5% additional-property surcharge on top. Scotland (LBTT) and Wales (LTT) have their own versions.

Example: on a £250,000 buy-to-let the 5% surcharge alone adds £12,500 to the bill.

Company vs personal (SPV)

Whether to hold property in your own name or through a limited company (often an SPV: a company set up just to hold property). Companies deduct mortgage interest in full and pay Corporation Tax, but incorporating has costs (SDLT, CGT, legal). The right answer depends on income, plans and portfolio size.

Example: a higher-rate landlord badly hit by Section 24 may pay less overall through a company, but only after the one-off switch cost pays back.

Deals, yield & finance

Gross yield

Annual rent ÷ purchase price, as a %. A fast way to compare properties, but it ignores every cost and tax, so never buy on gross yield alone.

Example: £12,000 rent on a £200,000 flat = 6% gross yield.

Net yield

Income after running costs (and, for commercial, after rates and voids) ÷ the price or total cost. Much closer to what you'll actually earn than gross yield.

Example: that £12,000 rent, less £3,000 of costs, on a £210,000 all-in cost = about 4.3% net yield.

Cashflow

The money left each month after the mortgage and all running costs. Positive cashflow means the property pays you; negative means you're topping it up.

Example: £1,000 rent − £550 mortgage − £150 costs = £300 a month positive cashflow.

Cash-on-cash return (ROI)

Annual cash profit ÷ the actual cash you put in (deposit + fees + refurb). It shows how hard your money is working, regardless of the property's price.

Example: £3,600 a year profit on £45,000 cash in = 8% cash-on-cash return.

Total cash in

All the money you need up front: deposit, stamp duty, legal and survey fees, mortgage fees and any refurb. The figure that really leaves your bank.

Example: £40,000 deposit + £7,500 SDLT + £2,000 fees + £10,000 refurb = £59,500 total cash in.

Loan-to-value (LTV)

The loan as a % of the property value. 75% LTV means a 25% deposit. Higher LTV means more borrowing, more interest, and more exposure to rate rises.

Example: a £150,000 loan on a £200,000 property = 75% LTV.

Interest cover ratio (ICR) & stress test

Lenders check the rent covers the mortgage interest by a margin (often 125% for companies, 145% for higher-rate individuals), tested at a higher "stress" rate. It decides how much you can borrow.

Example: at a 145% ICR and a 7% stress rate, £12,000 rent supports a loan of roughly £118,000.

Interest-only vs repayment

Interest-only pays just the interest, keeping monthly cost low but never reducing the loan. Repayment costs more monthly but clears the debt over the term. Most BTL investors use interest-only for cashflow.

Example: £150k at 5% is ~£625/mo interest-only, versus ~£877/mo on a 25-year repayment.

BMV & day-one equity

Below-Market-Value: buying under what the property is really worth, creating instant ("day-one") equity. Genuine BMV needs an honest market value, not the agent's asking price.

Example: buying at £205,000 what's truly worth £240,000 = £35,000 day-one equity (about 15% BMV).

BRRR (Buy, Refurbish, Refinance, Rent)

Buy a run-down property, refurbish it to lift its value, then refinance on the higher value to pull much of your cash back out and rent it. Success depends on the after-refurb value and the refinance terms.

Example: buy £120k, spend £30k, revalue at £200k, refinance at 75% (£150k), pulling most of your £150k back out.

ARV / GDV

ARV (After-Refurb Value) is what a single property is worth once done up; GDV (Gross Development Value) is the total finished value of a whole scheme. Both are the "end value" your numbers hinge on.

Example: three flats worth £200k each give a GDV of £600,000.

Development appraisal

Working a scheme back from its GDV: take off land, build, professional fees, contingency, finance and selling costs to reveal your profit, and the profit as a % of cost and of GDV.

Example: £600k GDV − £494k total costs = £106k profit, about 21% on cost and 18% on GDV.

Residual land value

The most you can pay for the land or building and still hit your target profit, once every other cost is accounted for. It stops you overpaying for a site.

Example: if the numbers only leave £178k for land to make 18% profit, paying £190k means missing your target.

Profit on cost / profit on GDV

Two ways lenders and developers judge a scheme. Profit on cost = profit ÷ total costs; profit on GDV = profit ÷ end value. Lenders often want around 20% on cost or 15–20% on GDV.

Example: £106k profit on £494k costs = 21% on cost; on £600k GDV = ~18% on GDV.

IRR (internal rate of return)

The annual return that accounts for the timing of cash going in and coming back: money returned sooner scores higher than the same money returned later. It lets you compare schemes that run for different lengths on a like-for-like basis. An indicative figure from your own numbers, not a guaranteed return.

Example: two schemes both make £100k profit, but the one that pays out in 12 months has a much higher IRR than the one that takes 30 months.

Return on equity & equity multiple

Return on equity (ROE) is profit as a % of the cash you put in yourself (after the loan). The equity multiple is how many pounds come back for each pound in: 1.3× means £1 becomes £1.30. Both measure how hard your own money works, separate from the borrowed money.

Example: £150k profit on £600k of your own cash = 25% ROE and a 1.25× equity multiple.

Peak equity & peak funding

Peak funding is the deepest a project goes into the red before sales come in, a guide to the total money (loan plus cash) needed to carry it. Peak equity is the most of your own cash tied up at once, after the development loan.

Example: a scheme needing £1.6m peak funding with a £1m facility ties up about £600k of your own cash at the deepest point.

Sales absorption

How quickly finished units actually sell. Modelling sales across several months, rather than assuming they all complete on day one, gives a realistic cashflow and a truer peak-funding figure. Selling more slowly ties your money up longer and lowers the return.

Example: six units selling over six months, not all in month one, pushes some cash later and raises the finance cost.

Bridging finance

Short-term, interest-only borrowing to buy or refurbish quickly, repaid by a sale or refinance ("the exit"). Fast but expensive: always cost the interest plus arrangement and exit fees, and be sure of the exit.

Example: £150k at 0.9%/mo over 9 months ≈ £12,150 interest, plus ~£4,500 in fees.

HMO, SA & strategies

HMO (House in Multiple Occupation)

A property let room-by-room to three or more tenants from more than one household who share facilities. Higher rents, but higher bills, voids, management and often a mandatory or additional licence.

Example: a 6-bed HMO at £650/room = £3,900/mo gross, far more than a single family let, before the extra costs.

Room-by-room yield

The true HMO yield worked out per room after bills, voids, management and the licence, not the flattering headline rent. It's the figure that tells you if an HMO really beats a standard let.

Example: a 15% gross HMO yield can drop to about 8–9% net once all-inclusive bills and voids are taken off.

Voids

Periods with no tenant and no rent. HMOs and short lets have higher voids than a single family let, so a realistic void allowance stops a deal looking better than it is.

Example: a 6% void allowance on £46,800 gross rent sets aside about £2,800 a year for empty rooms.

Serviced accommodation (SA)

Letting nightly or weekly, hotel-style (e.g. Airbnb/Booking.com). Nightly rates can beat long lets, but so do costs: cleaning, platform fees, higher voids, furnishing and possibly VAT once turnover is high.

Example: £120/night at 65% occupancy ≈ £2,340/mo gross: strong, until cleaning, fees and voids come off.

Rent-to-rent (R2R)

You rent a property from the owner (with written permission to sub-let) and let it out (as an HMO or SA), keeping the margin. Low capital in, but real legal, licensing and contractual duties.

Example: pay the owner £1,500/mo, earn £3,200 as an HMO, keep the difference after bills and voids.

Local Housing Allowance (LHA)

The maximum housing benefit a tenant in an area can receive (based on the 30th percentile of local rents). Compare it to market rent to see whether a benefits tenant can afford a property.

Example: if market rent is £1,150 but the LHA cap is £1,010, a fully benefit-funded tenant faces a £140 shortfall.

Compliance & legal

EPC & MEES

An Energy Performance Certificate is required to let a home. Under the Minimum Energy Efficiency Standard you normally need at least an EPC E to let (with a limited exemptions register). A rise to EPC C has been proposed but is not yet law.

Example: a property rated F can't be let until improved to E or a valid exemption is registered.

EICR

Electrical Installation Condition Report: a safety inspection of the fixed wiring, required for rented homes at least every 5 years, with any faults put right.

Example: a 2022 EICR is due for renewal by 2027.

Gas safety (CP12)

An annual check of gas appliances and flues by a Gas Safe registered engineer, required before a tenant moves in and every 12 months, with a copy given to the tenant.

Example: a certificate dated 3 March must be renewed by the following 3 March.

Deposit protection & the cap

A tenant's deposit must be placed in a government-approved scheme within 30 days, with prescribed information given. It's capped at 5 weeks' rent (annual rent under £50,000) or 6 weeks (£50,000+).

Example: at £1,200/mo rent, the deposit cap is 5 weeks ≈ £1,385.

Right to Rent

In England, landlords must check that adult tenants have the legal right to rent in the UK before a tenancy starts, and keep evidence. Penalties apply for letting to someone without the right.

Example: checking and copying a tenant's passport or share code before move-in satisfies the duty.

Renters' Rights Act 2025

Major reform of the private rented sector, including the end of Section 21 "no-fault" evictions, changes to how and when rent can be increased, and new standards. Rules are still bedding in, so always check the current position.

Example: once Section 21 ends, possession relies on the reformed Section 8 grounds instead.

HMO & selective licensing

A council can require a licence to let a property. Larger shared houses usually need a mandatory HMO licence; councils can add additional HMO licensing for smaller shared homes, and selective licensing (Housing Act 2004, Part 3) that can apply even to an ordinary single family let. Selective licensing is decided by the property's postcode, not the property type, so two identical houses in different streets can have different rules. Since December 2024 councils can bring in schemes of any size without central-government approval. Licences run up to 5 years and typically cost £500–£1,200. Letting an unlicensed property that needs one risks a civil penalty up to £40,000 (from 1 May 2026) and a rent-repayment order of up to two years' rent. Always check the exact address with the council. (Wales uses Rent Smart Wales; Scotland uses landlord registration.)

Example: a £900 five-year selective licence is about £180 a year: a real cost to build into any deal, and a legal must-have, not an optional extra.

Development & appraisal

Gross Development Value (GDV)

The total value of the finished scheme: what all the units sell for, plus any retained value. Every development appraisal works back from the GDV.

Example: four houses at £295,000 and two at £365,000 = a GDV of £1,910,000.

Residual land value

The most you can pay for the land and still hit your target profit. You work back from the GDV, take off all build, fee, finance and selling costs and the profit you require; what's left is the value of the land.

Example: if a scheme only hits a 20% profit on cost when the land is £340,000, paying £500,000 for the land would leave the deal well short.

Profit on cost / profit on GDV

Profit on cost is profit as a % of total development cost; profit on GDV is profit as a % of the end value. Developers usually target roughly 15–20%+ on cost to cover the risk of costs slipping.

Example: £148,000 profit on £1,760,000 cost = 8.4% profit on cost (thin); on a £1,910,000 GDV that's 7.8% profit on GDV.

Build cost, professional fees & contingency

Build cost is the cost to construct (often build area × £/sq ft). Professional fees (architect, engineer, planning, PM) are usually a % of build. Contingency is a buffer for the unexpected, commonly 5–10% of build.

Example: £900,000 build + 12% fees (£108,000) + 5% contingency (£45,000).

S106 / CIL

Planning costs. A Section 106 agreement is a contribution to local services (e.g. affordable housing or roads). The Community Infrastructure Levy (CIL) is a charge per square metre of new floorspace. Both are set by the local authority; always confirm before you buy.

Example: a CIL charge of £100/m² on 500m² of new floorspace adds £50,000 to costs.

Development finance (LTGDV, LTC, drawdown)

Short-term borrowing to fund a build, released in stages (drawdown) and repaid on sale or refinance. Lenders cap the loan at a maximum loan-to-GDV (LTGDV) and a maximum loan-to-cost (LTC); you get the lower of the two. Interest is usually rolled up (added to the loan) rather than paid monthly.

Example: a lender offers the lower of 60% LTGDV and 75% LTC; on a £1.91m GDV / £1.58m cost that's £1,146,000.

Arrangement & exit fees

An arrangement fee is the lender's set-up charge (a % of the facility, added at the start). An exit fee is charged when the loan is repaid (a % of the facility or of the end value). Both add to the true cost of finance.

Example: a 1.5% arrangement fee and 1% exit fee on a £1,146,000 facility = about £28,650 before any interest.

Sensitivity analysis

Testing how profit changes if key figures move, for example if sales values fall or build costs rise. It shows how much room for error a deal has before it stops working.

Example: a 5% fall in GDV alongside a 5% rise in build cost can turn a slim profit into a loss, worth seeing before you commit.

Commercial

Rateable value & business rates

Commercial property's "council tax". The Valuation Office sets a rateable value (its estimate of annual open-market rent); rates = rateable value × an annual multiplier, less any reliefs.

Example: a £30,000 rateable value × a ~0.50 multiplier ≈ £15,000 a year in rates before reliefs.

Small Business Rate Relief (SBRR)

100% relief below £12,000 rateable value, tapering to £15,000, generally only where it's your only business property.

Example: a small unit with an £11,000 rateable value can pay no business rates at all.

Capital allowances

Tax relief on qualifying fixtures in commercial property (wiring, heating, air-con, lifts, fit-out) via the Annual Investment Allowance (100% up to £1m). A specialist survey often finds far more than the obvious items.

Example: a £500,000 commercial purchase might contain £80,000+ of claimable fixtures.

Yield & covenant strength

In commercial property a higher yield usually reflects higher risk. Covenant strength is the tenant's financial ability to keep paying; a long lease to a strong tenant sells at a keener (lower) yield.

Example: a unit let to a national chain might trade at a 6% yield; the same unit with a weak local tenant might need 9%.

Rent review (RPI/CPI, cap & collar)

A lease term that changes the rent at set dates, often linked to an inflation index (RPI or CPI), or to open-market value. A "cap" limits how much it can rise; a "collar" sets a minimum.

Example: a CPI-linked review with a 4% cap and 1% collar means the rent rises between 1% and 4% however high inflation goes.

Service charge apportionment

Splitting shared building costs between tenants, usually by floor area, so each pays a fair share of the total.

Example: a tenant with 25% of the lettable floor area pays 25% of the £20,000 service charge = £5,000.

Class MA / permitted development

A right to change use from commercial (Use Class E) to residential, subject to prior approval and conditions, a common route for adding value. Always confirm with a planning consultant.

Example: converting a vacant high-street shop into flats under Class MA, subject to size and light conditions.

VAT & option to tax

Older commercial buildings are VAT-exempt unless the seller has "opted to tax" (then 20% VAT on the price, usually recoverable). Sold let with a tenant it may be a transfer of a going concern (TOGC) with no VAT if conditions are met.

Example: a £500,000 opted building adds £100,000 VAT on purchase: recoverable, but a real cashflow hit.

Education, not advice

Educational only. This glossary gives general, plain-English explanations and simplified examples — it is not financial, tax, legal or investment advice, and figures are illustrative. Rules, rates and thresholds change; always confirm the current position on GOV.UK or with a qualified professional.

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