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Retirement saving: should you use buy-to-let or a stocks and shares ISA?

Two of the most popular means of saving for retirement in the last couple of decades have been buy-to-let and stocks and shares ISAs. For many people, the ideal option has been to invest in both, since this could help to spread the risk within a portfolio.

Now, though, changes to the landscape for landlords could mean that investing in a buy-to-let is becoming more challenging. As such, having listed property investments within a stocks and shares ISA, alongside a wide range of other stocks, could prove to be a sound move.

Changing times

Due in part to a continued shortage of new homes being built versus rising demand, becoming a landlord is becoming increasingly challenging. The political consensus seems to be clear: second-home ownership is likely to be made more difficult in future.

This could be in terms of further tax changes that have already seen a stamp duty surplus placed on second-home ownership, as well as changes to interest payments on mortgages being offset against rental income. It may also mean that regulations become more onerous, while the ease with which many landlords obtained buy-to-let mortgages in the past seems to be coming to an end.

Property investment

As such, instead of a buy-to-let it may be a good idea to have exposure to the UK’s property market through a stocks and shares ISA. With the amount that can be contributed to a stocks and shares ISA having increased to £20,000 per year, it may be possible to apportion part of this for the purchases of REITs, as well as other property investment companies.

Doing so would allow an investor to have exposure to the UK’s property market, which could still offer capital growth potential, while benefitting from the tax-efficient structure of an ISA. And, with a range of REITs currently trading at less than their net asset value, it may be possible to obtain a number of good value investments.

FTSE 100

Of course, investing in a range of non-property shares also seems to be a shrewd move. The FTSE 100 has a dividend yield of around 4.4% at the present time, which suggests that it could offer significantly better value for money compared to residential property. And with the global economy set to generate impressive growth despite the risks that it faces, now could be a good time to buy a range of global stocks, as well as those which are focused on the UK economy.

With a stocks and shares ISA providing a simple and tax-efficient means of investing at a time when the appeal of buy-to-let may be waning, having a mix of global stocks and UK property shares could be a sound move. Investors may benefit from having greater diversity, while also leaving behind the unfavourable tax and regulatory changes that could become a feature of the buy-to-let industry over the medium term.

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