Real Return After Tax and Inflation Calculator
What a nominal return is actually worth once tax and inflation have both taken their share.
Results
What this tool does
A deposit paying 6% while inflation runs at 3% and the tax office takes 28% of the interest is not paying 6%, or even 3%: it is paying about 1.3% in real purchasing power. Two of the three numbers work against you at once, and the tax is charged on the nominal interest — including the part that is merely compensating you for inflation — which is what makes the gap so much wider than people expect.
Formula
real = (1 + nominal after tax) / (1 + inflation) - 1
Variables
| Symbol | Meaning | Unit |
|---|---|---|
nr | Nominal return | % |
tx | Corporate tax rate | % |
ia | Annual inflation rate | % |
am | Amount | — |
RR | Real return | % |
AT | Return after tax | % |
GN | Real gain | — |
TC | Road tax per year | — |
LO | Lost to tax and inflation | % |
Worked example
- Nominal return6 %
- Corporate tax rate28 %
- Annual inflation rate3 %
- Amount10,000
- Real return1.2816 %
- Return after tax4.3200 %
- Real gain128.16
- Road tax per year168.00
- Lost to tax and inflation4.7184 %
Limitations
- This is an informational calculator, not personalised financial advice. Rates, fees, taxes and contract conditions vary between institutions and countries.
- Tax rates and rounding rules differ between countries and sometimes between regions. Use the rate that applies to your invoice.
- The result is an estimate based only on the values you type. Real situations often include factors this calculator does not know about.
Frequently asked questions
Why not just subtract inflation from the return?
Subtracting is the approximation everyone uses and it is close enough at low rates, but it is not the definition. The real return is the ratio of what you end up with to what the same basket now costs, so it is a division, not a subtraction. At 6% and 3% the difference is small; at 40% and 30% the subtraction overstates the real gain badly.