Comparison · Property Investment · 2026
HMO vs Single Let Property UK 2026: Which Gives Better Returns After Tax?
HMOs promise gross yields of 8--12% against a single let's 4--6%, but the gap narrows fast once you account for licensing, management, voids and Section 24. This guide runs the numbers side by side using 2026/27 tax figures to show which strategy delivers more net income for landlords in different situations.
TL;DR -- 30-Second Summary
- • HMO gross yields: typically 8--12% vs 4--6% for single let
- • Section 24 hits both equally -- mortgage interest only gives a 20% tax credit
- • HMO licensing: mandatory for 5+ person HMOs; fines up to GBP 30,000 without a licence
- • Management costs are significantly higher for HMOs; net yield gap is narrower than it looks
- • Single lets are simpler, easier to sell and better for landlords who want passive income
At a Glance: HMO vs Single Let
| Factor | HMO | Single Let BTL |
|---|---|---|
| Typical gross yield | 8--12% | 4--6% |
| Number of tenants | 3+ unrelated | 1 household |
| Mandatory licensing (5+ HMO) | Yes -- council required | No (selective licence may apply) |
| Management intensity | High (multiple tenants, bills, repairs) | Lower |
| Void risk | Spread across rooms | Full void if tenant leaves |
| Section 24 applies? | Yes | Yes |
| Business rates risk | Possible at 5+ self-contained units | No |
| Mortgage product | HMO specialist mortgage, higher rate | Standard BTL mortgage |
| CGT rate on sale | 18% / 24% | 18% / 24% |
Worked Example: GBP 300,000 Property
Take a GBP 300,000 terraced house in a university town. As a single let, the market rent is GBP 1,100 per month (GBP 13,200 per year), a gross yield of 4.4%. The same property converted and licensed as a five-room HMO generates GBP 600 per room per month on average, totalling GBP 3,000 per month (GBP 36,000 per year) -- a gross yield of 12%. The landlord has an interest-only mortgage at 5% on 75% loan-to-value (GBP 225,000), costing GBP 11,250 per year in interest.
| Item | Single Let | HMO (5 rooms) |
|---|---|---|
| Gross rent | GBP 13,200 | GBP 36,000 |
| Mortgage interest | GBP 11,250 | GBP 11,250 |
| Management (10% / 15%) | GBP 1,320 | GBP 5,400 |
| Maintenance and voids est. | GBP 800 | GBP 3,000 |
| Licensing fee (annualised) | GBP 0 | GBP 300 |
| Net rental income (before tax) | GBP 11,080 | GBP 27,300 |
| Taxable income (Section 24: interest not deducted) | GBP 11,080 + GBP 11,250 re-added | GBP 27,300 + GBP 11,250 re-added |
| Tax at 40% less 20% credit (higher-rate landlord) | approx. GBP 2,186 | approx. GBP 8,610 |
| Estimated net profit after tax | approx. GBP 8,894 | approx. GBP 18,690 |
Even after the extra HMO costs and Section 24, the HMO generates roughly twice the net profit. However, these are estimates and exclude conversion costs (often GBP 20,000--GBP 50,000 to properly convert a house to HMO standard with fire safety measures, room sizes and en-suite facilities). The true return on investment must include conversion capital.
Section 24 -- The Level Playing Field
The most important point for landlords financing either type with a mortgage is that Section 24 treats them identically. You cannot deduct mortgage interest from rental income before calculating your tax liability. Instead, you calculate tax on the full rental income (minus allowable expenses such as management, repairs and insurance, but not mortgage interest), then claim back a flat 20% tax credit on your interest costs.
For a basic-rate taxpayer the net effect is broadly neutral. For a higher-rate or additional-rate taxpayer, the extra tax cost relative to pre-2017 rules is substantial. Neither the HMO nor the single let escapes this rule. The higher gross income from an HMO can push more landlords into the higher-rate band, making the tax drag proportionally larger.
Verdict: Which Is Right for You?
An HMO delivers higher gross and net income from the same property but demands significantly more time, capital outlay on compliance and willingness to manage multiple tenant relationships. It suits landlords who treat property as an active business or who work with a specialist management company.
A single let suits landlords who want a genuinely passive income stream, a simpler legal framework and an easier resale. The lower yield is the price of simplicity. Landlords who are higher-rate taxpayers and heavily mortgaged will find Section 24 painful under both strategies -- the solution is the same regardless: reduce mortgage debt, hold in a company, or accept the tax drag.