Buy-To-Let Is Dead! Long Live The Stock Market!

In a recent survey, 44% of people said that investing in property would make the most of their money and offered the best prospects for their retirement. In the same survey, just 25% of people selected a pension as being the preferred option. Following George Osborne’s new tax on buy-to-let properties, however, those figures are very likely to change in the coming years as property becomes relatively unappealing as an investment class.

Of course, the additional 3% stamp duty on all buy-to-lets and second homes on its own is not enough to kill off the property investment world. However, when combined with other clouds on the horizon, it seems highly unlikely that the numbers will add up for individuals seeking to speculate on further growth in the UK property market.

Notably, the Chancellor announced earlier this year that mortgage interest relief would be limited to basic rate taxpayers. This will be phased in from 2017 and means that the repayments of a mortgage can no longer be offset against higher rate tax payments, which reduces the net yield on property for landlords who pay the higher rate of tax.

In addition, interest rate rises are set to take place within the next year. This is a potentially huge problem for property investors, since many of them have taken out interest only mortgages and maxed out on debt, leaving themselves with minimal headroom when making monthly interest payments. Even those who have been more prudent and have repaid some of their borrowings will still see their yield fall as the cost of borrowing begins its long, upward climb.

Furthermore, property is becoming increasingly unaffordable. The price to earnings ratio is at its highest level since the credit crunch and, while wage growth has been positive in recent months, history tells us that the current level is simply unsustainable. As such, the capital gains from property investing could realistically fail to significantly beat inflation over the medium to long term. And, of course, any capital gains which are booked will be taxed at 18% or 28% depending on the landlord’s tax band and will now need to be paid within one month.

While investing in property may not prove to be a viable option, buying shares remains an effective means for anyone to build their wealth. From a tax perspective, a pension is hugely more appealing, since investing via a SIPP or workplace pension is tax free on entry, while an ISA does not incur any capital gains, withdrawal costs, nor do dividends contribute towards an individual’s taxable income.

Additionally, stamp duty is just 0.5% on entry, dividend taxes for shares held outside an ISA are 0% for the first £5k per year and 7.5% for basic taxpayers on amounts above that, while capital gains tax can easily be avoided via an ISA (as mentioned). And, with shares offering a huge degree of diversification, low dealing charges and the simplicity of clicking a mouse button before watching dividends roll in, they appear to have significantly greater appeal than a buy-to-let.

With that in mind, the analysts at The Motley Fool have written a free and without obligation guide called 5 Shares You Can Retire On.

The 5 companies in question offer stunning dividend yields, have fantastic long term potential, and trade at very appealing valuations. As such, they could deliver excellent returns and provide your portfolio with a major boost in 2016 and beyond.

Click here to find out all about them – it's completely free and without obligation to do so.