Buy-To-Lets & How To Be Tax Efficient | Save Tax When Investing.

Introduction

Hello, welcome back to our channel podcast. My name’s Gemma, and here at WS we talk about all things relating to money, mortgages, and positive money mindsets.
On today’s episode of Let’s Talk Money and Mortgages, we have Iftika, a trained accountant and mortgage advisor with over 10 years of industry experience and one of the founding directors at WS.

Q1: How can you be tax efficient with buy-to-lets?

With buy-to-lets, there are different types of taxes, but the main recurring one is income tax.
Income tax is based on: Income – Expenses = Profit (taxable).
Many landlords miss out on expenses because they don’t keep proper records or receipts.
To be tax efficient, you must maintain all your expenses.
Think with your “expenses hat” on whenever you spend money—always ask: Can I claim this? Do I need a receipt?

Q2: Who needs to file a tax return?

Most landlords must file a tax return.
Exception: If total rental income in a tax year is less than £10,000, no return is required.
Rent a Room Allowance: If renting a spare room in your home and income is below £7,500, you don’t need to file either.
Company Directors: Even if you have a limited company and are a director, you must file a tax return. Don’t assume being a director exempts you.

Q3: What taxes do property investors pay?

As a property investor, you could face 6–7 types of taxes:
Stamp Duty Land Tax (SDLT): Paid when buying property. Buy-to-let investors usually pay an extra 3% surcharge.
Income Tax: Paid annually on rental profits.
VAT (Indirect): Not charged on rent, but landlords pay VAT on services (e.g., estate agents). Cannot be reclaimed on residential lets.
Capital Gains Tax (CGT): Paid on profits when selling a property, subject to allowances/exemptions.
Inheritance Tax (IHT): Charged at 40% on estates over £325,000 (or £650,000 for couples).
Corporation Tax: Applies only if the property is held in a limited company (currently 19%).

Q4: How does income tax work for landlords?

You pay tax on profits, not income.
Example: Rental income = £10,000. Expenses = £3,000. Profit = £7,000 → tax due.
Why is it such a big topic now?
Section 24: Mortgage interest can no longer be fully deducted if you’re a higher-rate taxpayer. You now only get a 20% tax credit.
Wear and Tear Allowance removed: Previously landlords could claim 10% of rental income by default. Now, only actual replacements are deductible.

Q5: Are expenses the key to reducing tax?

Yes.
Rental income is mostly fixed, but expenses are what reduce your taxable profit.
Always keep receipts for: maintenance, repairs, estate agent fees, safety checks, replacements, travel, etc.
Even hiring an accountant can save you money, as they identify claimable expenses.

Q6: Do you need receipts for everything?

Yes, HMRC prefers receipts over just bank statements.
Cash-in-hand payments don’t help you claim tax relief.
Tip: You don’t need to keep original paper receipts.
Take a photo and upload to Google Drive, Dropbox, or apps like Xero.
Keep them organised digitally.

Q7: What types of expenses can landlords claim?

Two main types:
Capital Expenditure (one-off, improves the property):
Purchase price, solicitors’ fees, stamp duty, auction fees.
Major renovations (extensions, structural work).
Furniture and assets lasting several years.
Revenue Expenditure (day-to-day, tax-deductible annually):
Repairs, safety checks, maintenance.
Estate agent fees, advertising, inventories.
Travel, stationary, small replacements.
Be careful not to mix the two—HMRC will challenge misclassification.

Q8: Can you give an example of capital vs revenue expenses?

Example: Buying a derelict house to renovate and let out.
Capital costs (one-off): Auction fees, purchase price, solicitor fees, stamp duty, repairs to make it initially habitable.
Revenue costs (ongoing): Estate agent fees, boiler servicing, safety certificates, minor repairs, cleaning, tenant check-out costs.

Q9: How can landlords be as tax efficient as possible?

Think in 4 categories of revenue expenses:
Pre-renting costs: Advertising, inventory fees, gas/electric checks, referencing.
During tenancy: Maintenance, boiler servicing, estate agent fees, replacements, landlord travel, food if on-site all day.
Tenant leaving: Check-out costs, professional cleaning.
Empty property costs: Council tax, water, electricity.
Always claim what relates directly to the property.

Q10: Are there exceptions to the receipts rule?

Yes, a few:
Mileage: Instead of petrol receipts, keep a mileage log (claim 45p per mile).
Home office allowance: £6/week (£26/month) can be claimed without receipts. Larger claims require a home-office calculation.
Employee costs: You can employ family members (if genuine work is done). Salary under £8,000 may avoid NI/PAYE. Must be run through PAYE scheme.

Q11: Are expenses different for limited companies or Airbnb/holiday lets?

Yes.
With Airbnb/holiday lets (serviced accommodation) or limited companies, mortgage interest is fully deductible.
Individuals in their own name can only claim the 20% tax credit.
Limited companies pay corporation tax (19%), often less than personal higher-rate tax.

Final Notes

Thanks, Iftika, for sharing these insights.
Remember, this advice may not apply to everyone. Always speak to an advisor or accountant for personalised guidance.
If you don’t have an advisor, our WS team is always happy to help.
Reminder: A mortgage is secured against your home or property and it may be repossessed if you do not keep up with repayments.