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Forget buy-to-let! I think a Stocks and Shares ISA can help you get rich and retire early

With one in 10 adults owning a second home, it’s clear the buy-to-let industry has been hugely popular in recent decades. Although there have been difficult periods, such as during the financial crisis when property prices declined, over the last 20 years investing in property has largely been a profitable exercise for many.

Today though, the prospects for the industry are becoming more challenging. Indeed, it’s becoming increasingly complex for individuals to own property from a regulatory and tax perspective.

As such, investing excess capital through a Stocks and Shares ISA, rather than through a buy-to-let, could be a shrewd move. It may be more tax efficient, simpler, and more profitable over the long run.

Simplicity

In the last few years there have been various changes made to buy-to-let investments from a tax perspective. For example, there’s now a 3% stamp duty surcharge on second homes. There’s also reduced scope to offset mortgage interest payments against rental income, which could lead to a higher tax bill for some landlords.

Alongside this, regulations regarding tenancies have also changed. For example, tenants can no longer be charged fees prior to moving in. There’s speculation these costs (which can often be in the hundreds of pounds per tenancy) may be levied on landlords through higher management fees, as estate agents look to recoup lost income.

By contrast, investing in a Stocks and Shares ISA is very simple and straightforward. There’s no tax to pay on any income or gains from assets held within in. It’s also easy to open an account, as well as buy and sell shares, due to the improving platforms available online. As such, for individuals who are somewhat time-poor, investing excess capital in shares instead of buy-to-let could be an easier option.

Return potential

With all assets moving in cycles, it appears as though now could be a good time to pivot from buy-to-let to the stock market. Property prices compared to average incomes are towards the upper end of their historic range, which signifies the seemingly endless rise in house prices of the last couple of decades may be unsustainable. This could mean the potential for capital growth over the medium term may be somewhat limited.

By contrast, the stock market has disappointed in some respects over the last 20 years. The FTSE 100, for example, has recorded annualised gains of less than 1% during that time. This suggests it could now enjoy a period of growth – especially since it has a relatively high dividend yield of 4.5%. This indicates it could offer good value for money.

As such, investors may be better off avoiding buy-to-let and instead buying shares through a Stocks and Shares ISA. It could offer higher returns, as well as a less stressful experience over the coming years.

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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.