Buy to let explained – Property investing for beginners UK

Today we’re going to be talking about property investing for beginners and specifically buy-to-lets.

We’ll be discussing:

• Whether buy-to-lets are still profitable
• The drawbacks (such as tax)
• How you might overcome these problems

Introduction

Gemma:
Hello, welcome back to our channel and podcast. My name is Gemma and here at WIS, we talk about money, mortgages, and positive money mindset.

If that interests you, be sure to subscribe and hit the thumbs up – it really helps with our YouTube algorithm and means you won’t miss out on any of our videos.

On today’s episode of Let’s Talk Money and Mortgages, we have Iftaker co-hosting again.

Iftaker is a trained accountant, mortgage advisor, and one of the founding directors of the WIS Group. He’s also a property investment enthusiast, so it’s a pleasure to have him back on the show.

Q&A Session

Q1: Iftaker, how old were you when you bought your first property?

Iftaker:
I was about 28. I came to the UK from Sri Lanka at 27, and around 28–29 I bought my first property.

Q2: What is a buy-to-let property?

Iftaker:
A buy-to-let is an investment property you purchase to let out.

It’s not legal for you or your family to live in it.

It must be used strictly for letting purposes.

Q3: Can I rent a buy-to-let property to family or friends?

Iftaker:
Renting to family members is strictly not allowed.

Renting to friends may be okay if it’s an arm’s length transaction.

Q4: Are buy-to-lets still profitable in 2021?

Iftaker:
Yes, but tax changes—particularly Section 24—have impacted profits.

Example of the change:

Before: If you earned £10,000 and had £3,000 in interest, profit = £7,000. At 40% tax, you paid £2,800.

Now: The full £10,000 is taxed at 40% (£4,000). You only get a 20% rebate on the £3,000 interest (£600). So you pay £3,400.

So, tax has increased.

Q5: How do successful property investors overcome Section 24?

Iftaker:
Many invest through limited companies.

Others diversify into different strategies, like:

• Rent-to-rent
• Serviced accommodation / furnished holiday lets (which have tax concessions)

Some benefit from staycation demand post-Covid.

Returns come in two forms:

• Short-term ROI (year-on-year income) – affected by Section 24.
• Long-term capital gains – largely unchanged, still profitable.

Q6: What is Capital Gains Tax (CGT)?

Iftaker:
CGT applies when you sell a property.

Example: Buy at £100,000, sell at £200,000 → gain of £100,000 (taxable).

Allowances and concessions apply (e.g., if you’ve lived in the property).

Q7: Is that why some investors keep portfolios instead of selling?

Iftaker:
Yes. Some investors sell gradually during retirement, using their annual CGT allowance.

Q8: How does tax work when purchasing a rental property?

Iftaker:
Income tax: Based on rental income minus allowable expenses.

Interest: Only partly deductible.

Selling: CGT applies.

Death: Inheritance tax may apply to your estate.

Q9: What does BMV mean?

Iftaker:
BMV = Below Market Value.

Example: Property worth £100,000 purchased for £80,000.

The £20,000 discount is your gain.

Investors often renovate to add more value on top.

Q10: What is OPM (Other People’s Money) in property investing?

Iftaker:
It means buying property with someone else’s funds.

Could be:

• Bank loan (mortgage)
• Family money
• Joint ventures with partners

Example:

Buy property worth £100k at £80k.

Need £20k deposit (25%). Borrow from parents or JV partner.

Renovate (£15k spend), property rises to £120k.

Remortgage → release £30k. Repay parents/partner.

End up owning the property without using your own money.

This works well in high-demand areas.

Q11: How do investors find the best property deals?

Iftaker:
Leafleting: Posting notes in specific streets to cut out estate agents.

Networking with estate agents: Sometimes get early access to listings before they appear online.

Q12: How important is location in property investing?

Iftaker:
Very important – location, location, location!

Example:

One client invests near a popular grammar school.

Parents often move there for school places, creating strong rental demand.

Combining this with BMV purchases creates solid long-term returns.

Q13: Should I incorporate when purchasing an investment property?

Iftaker:
It depends.

Incorporating (using a company) can help avoid Section 24 tax issues.

But:

• It’s not always suitable for basic-rate taxpayers or those with just one property.
• Joint ownership with a non-working spouse might be more tax-efficient.

Serious landlords with portfolios often benefit from incorporating.

Banks may charge higher interest rates to portfolio landlords.

Get professional advice before making this decision.

Q14: Is the property market going to crash (post-Covid)?

Iftaker:
There’s no crystal ball.

Personal example:

I bought a property in 2008 (during the crash). Prices stayed flat for a couple of years, then doubled over time.

This proves the saying: “Don’t wait to buy property. Buy property and wait.”

Q15: Should I get an interest-only mortgage or a repayment mortgage?

Iftaker:
Recommendation: Repayment mortgage (house is yours at the end of term).

Reality: Many investors prefer interest-only. Why?

• Lower monthly costs.
• They remortgage later, use equity growth, and buy more properties.

Final Notes

Gemma:
Thank you, Iftaker, for sharing your advice.

Just a reminder:

These points may not be suitable for all borrowers. Always speak to an advisor.

If you don’t have a broker, our WIS contact details are below.

Remember: Mortgages are secured against your home, which may be repossessed if you do not keep up repayments.

Thank you again for joining us today. We’ll be back next week with another episode of Let’s Talk Money and Mortgages.

Stay safe, and see you soon!