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Why I’d top up my ISA rather than investing in buy-to-let, and here’s what I’d buy

Many Britons are obsessed with property and have invested in buy-to-let property as a way of increasing their wealth – especially at a time of incredibly low interest rates. But increased taxes have made it more expensive to be a landlord so I think now is a great time to invest in the stock market instead. It’s an easy-to-access alternative to buy-to-let investing and with this year’s ISA deadline fast approaching, here’s how to make the most of the opportunity to invest in shares. I’ll also highlight one share I’d be tempted to buy now for my ISA.

Tax-free wealth creation

ISAs are a very tax efficient way to invest money. There’s no capital gains tax so increases in your investments are not taxed. It means that you as an investor keep more of the reward for the investment you make. With buy-to-let, by contrast, tax – particularly property taxes which tend to be significant – can seriously eat into returns. At the end of the day why needlessly reduce your profits?

ISAs are easy to set up and to use, giving you access to a wide range of investment options, so you can be conservative if you wish through to investing in the most adventurous high potential AIM stocks. 

And the ISA allowance is generous at £20,000 a year. That’s plenty for most investors and makes it achievable over time, and with the help of the phenomenon of compound investing, to even become an ISA millionaire.

The problem with buy-to-let

Investing in property is a completely different kettle of fish. It’s complicated and requires a lot of money, time and patience. I think that for many, property investment is more of a decision made with the heart (people want to own properties and own a tangible asset) rather than a decision made with the head. Landlords are firmly in the crosshairs of the government too, with existing taxes going up even further, and it’s unlikely the pressure will ease any time soon. 

A FTSE 100 company

So where would I invest any last-minute ISA money? The share price of packaging and paper company Mondi (LSE: MNDI) has struggled of late after an initial surge at the beginning of the year, but I still find it appealing. After the most recent results, the dividend was hiked by 23%, which is an encouraging sign for investors. It shows management has confidence in the future of the business.

I think investors can be confident about the company’s prospects too and I’d consider adding it to an ISA. Mondi has an industry-leading return on capital employed (ROCE) of 19.7% – a good indication of of how well the business invests. And the company has seen a compound annual growth rate in underlying operating profits over five years of 10% a year up to 2017.

For me, what this adds up to is a business that’s in good shape and can generate returns for investors. And it doesn’t trade on a demanding valuation as the P/E ratio is around 11, meaning the shares are good value and making now a good time to to buy them for an ISA, in my opinion.

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Andy Ross has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.