I dreamed of having a buy-to-let property for years, but these days my thoughts are focused on buying FTSE 100 shares. There’s a simple reason for that. If you buy equities inside a tax-free Stocks and Shares ISA, investing is quick and easy. By contrast, buy-to-let is a tax and administrative nightmare. And it’s getting worse.
For 20 years, everything was set fair for buy-to-let. Investors enjoyed double-digit annual returns from rental income and rising house prices. Then, in 2015, chancellor George Osborne launched his buy-to-let tax attack, to level the playing field with young buyers who were being squeezed out of the market by landlords. That was the reason he gave, anyway.
Ever since, the maths had been against landlords. They have to pay a 3% stamp duty surcharge when buying an investment property. Wear and tear allowances have been reduced, and higher-rate tax relief on rental income has been scrapped.
Here’s why I buy FTSE 100 shares
This makes it harder than ever to make a decent return from buy-to-let. This autumn, chancellor Rishi Sunak could make things even worse, if he increases capital gains tax (CGT) as expected. Today, landlords pay 18% or 28% CGT when selling a property, depending on their tax bracket. In future, this could be aligned with income tax, at 20%, 40%, or 45%.
There’s loads more red tape too, especially for houses in multiple occupation (HMOs). It makes me wonder why people bother with buy-to-let any longer. Especially when you can invest in FTSE 100 shares easily and tax efficiently through an ISA.
With a Stocks and Shares ISA, you don’t have to worry about income tax or CGT at all. You can invest up to £20,000 a year, and all your dividend income and capital growth is tax-free for life. Even better, you don’t have to mention ISA holdings on your tax return, whereas landlords have all sorts of tax reporting responsibilities. You’ll only pay the 0.5% stamp duty levy on share purchases, and potentially inheritance tax when you die.
I’d forget buy-to-let
Investing in FTSE 100 shares is also way, way easier than buying a property. You can trade them in seconds, whereas the average property transaction takes up to three months to complete.
You don’t have to worry about property chains, gazumping, gazundering, pushy estate agents, lazy conveyancing solicitors, or any of that nonsense. Nor do you have to negotiate with tenants who cannot afford to pay their rent.
Of course, there are risks with when investing in FTSE 100 shares. As we saw in March, they can crash at any time. However, you get round this by investing for the long term. History shows that share prices always recover, if you give them time.
Then you just sit back and watch them grow, with minimal effort on your part. Again, that’s very different to investing in a buy-to-let.
