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Forget the stamp duty holiday! I’d rather invest tax-free in FTSE 100 shares than buy-to-let

I think the easiest way to build your long-term wealth is by investing in FTSE 100 shares, but not everybody agrees. Some prefer to invest in property, through the buy-to-let scheme. They will now be especially keen after Chancellor Rishi Sunak announced a stamp duty holiday running to 31 March next year.

This suspends stamp duty on properties up to £500,000, saving buyers a maximum £15,000. In a surprise move, the tax break also applies to property investors and second homeowners. Some have said it could trigger a buy-to-let revival. Count me out though.

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Buy-t0-let is no holiday

Investing in FTSE 100 shares is far simpler and more tax efficient than buy-to-let. You can set up an online trading account in minutes. Then you can buy and sell shares in seconds. 

If you buy those FTSE shares inside a Stocks and Shares ISA, your returns will be entirely free of income tax and capital gains tax. For life.

Things are a lot more complicated once you start investing in property. The buying process takes months, rather than seconds. Even with Sunak’s stamp duty holiday, buying property is costly. You still have to shell out for legal fees and a survey. If you need a mortgage, there will be arrangement fees. Then you have the cost of doing it up and advertising for tenants.

Despite Sunak’s stamp duty holiday, landlords still have to pay a 3% stamp duty surcharge on purchases. That would total £9,000 on a £300,000 property. By contrast, you can typically trade FTSE 100 shares for just £5 or £10 a pop.

So much easier to buy FTSE 100 shares

Buy-to-let is also a lot of effort. You have to interview tenants. Prepare contracts and inventories. Negotiate with those who cannot keep up with their rent – a major worry now thanks to Covid-19.

You can hire a letting agent to do the work for you. In return, you will hand over around 15% of any rent you earn.

At the end of all that, you have to pay income tax on your rent, and capital gains tax when you sell the property. At a higher rate of 28%.

Worse, the Treasury has launched a tax attack on buy-to-let. As well as the stamp duty surcharge, higher rate tax relief on mortgage interest has been scrapped. Wear and tear allowances have been reduced too. 

It would take more than a stamp duty holiday to persuade me to bother with buy-to-let. That is why my retirement wealth is mostly in FTSE 100 shares.

Stamp duty is not an issue

Some of you may think this is a dangerous time to invest in the stock market, following the recent crash. I would disagree. This is actually a great time to buy FTSE 100 shares, provided you plan to hold them for the long term.

The index is still down 20% this year. This means can pick up top FTSE 100 stocks at bargain prices. true, you pay stamp duty on the transaction, at 0.5%. That’s a small price to pay for the many benefits.

Think twice before jumping into buy-to-let. It’s no holiday.

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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.