After-Tax Yield Calculator

A 5% pre-tax yield at a 40% marginal rate is a 3% after-tax yield. On 10,000 that is 300 kept against 500 of headline income, with 200 going in tax. Two products quoting the same headline yield can leave very different amounts once the tax treatment of each is applied, which is why the comparison has to be made after tax rather than on the quoted figure.

What the result means

After-tax yield is the rate at which an investment actually compounds for its owner. It is the figure to use when comparing a taxable holding against one inside a sheltered wrapper at the same headline yield, and when comparing two products whose headline yields and tax treatments both differ.

The same arithmetic run backwards gives the taxable yield needed to match a tax-free one: divide the tax-free yield by one minus the tax rate. At a 40% marginal rate, a 4% tax-free yield needs a taxable yield of 6.67% to match it, and the 3% after-tax result at the defaults corresponds to the 5% headline it came from.

Quick example

With a pre-tax yield of 5% and a marginal tax rate of 40% on an investment of 10,000, the after-tax yield is 3.00%. The annual income is 500 before tax, 300 after it, and 200 is paid in tax. Changing only the rate moves the result proportionally: 0% leaves the full 5.00%, 20% gives 4.00% and 45% gives 2.75%.

Which inputs matter most

Only two of the three inputs move the headline figure. The pre-tax yield scales it directly and the marginal rate scales what is kept, so the after-tax yield is one multiplied by the other. The investment amount changes nothing about the yield itself: at 10,000 the result is 3.00% and at 100,000 it is still 3.00%, with only the cash rows moving from 300 and 200 to 3,000 and 2,000. That makes the amount useful for sizing the cash effect and irrelevant to the comparison between products.

What's happening under the hood

After-tax yield is the pre-tax yield multiplied by one minus the marginal rate. Cash income is the principal times the pre-tax yield, cash kept is the principal times the after-tax yield, and tax paid is the difference between the two. Every figure is annual and no compounding is applied within the year.

What the headline number hides

A headline yield is a gross figure that says nothing about what reaches the holder, and the gap between two products at the same headline can be wide. A 5% taxable yield at a 40% marginal rate and a 3% tax-free yield produce identical results, so the taxable product needs to clear 5% before it is genuinely ahead. Costs work the same way and sit outside this calculation: platform charges, fund fees and any dealing or custody cost reduce the realised yield alongside tax, and they apply whether the holding is sheltered or not.

Putting yields on the same footing

Comparing yields across differently taxed instruments means putting them on the same basis before ranking them. Where the products are taxed at different rates rather than at the same one, each has to be converted separately: a dividend taxed at one rate and interest taxed at another cannot be compared by applying a single figure to both. The calculator handles one product at a time, so a comparison means running it twice with the rate that applies to each.

Two simplifications worth knowing

Two simplifications are worth knowing. Applying a single marginal rate assumes the income sits entirely in one band, whereas a large enough amount can push part of it into the next, making the effective rate higher than the one entered. The tool also treats all yield as taxed identically, while many jurisdictions tax interest, dividends and capital gains at different rates, and holdings inside a tax-advantaged wrapper may not be taxed at all. Entering the rate that applies to that specific income gives a comparable figure.