If I was looking to make a million for retirement, I’d focus on UK shares. I think investing in the FTSE 100 is a much easier way of building long-term wealth than running a buy-to-let property. And your chances of success are greater too.
The stock market crash has handed investors an opportunity to buy UK shares at greatly reduced prices. By contrast, property is more expensive than ever. As the lockdown returns and unemployment fears rise, I reckon now’s a risky time to take a punt on property.
Here are five reasons why UK shares beat buy-to-let hands down.
They’re so easier to trade
You can buy UK shares in seconds. Once you have set up an online platform, and decided which stock you want to buy, you just have to click the button. If only buying property was that easy. The average transaction takes three months to complete. It can collapse at any time, without redress, especially if there’s a chain. Shares are a lot easier to sell too. You can dispose of them in seconds. When the property market cools, you may be stuck for months.
UK shares are cheaper to buy
When you add up the full cost of buying a property, it’s a shocker. Despite the current stamp duty holiday, investors still pay a 3% surcharge on the full property price. Somebody buying a £250,000 buy-to-let has to pay £2,500 in stamp duty. By contrast, the stamp duty charge when you buy UK shares is just 0.5%. Dealing fees are around £10. Plus you don’t have any legal fees, mortgage arrangement fees, or other unexpected costs.
Property running costs are much higher
Once you’ve brought UK shares there’s no further cost, aside from your platform fee. With property, your expense is only just starting. It’s likely to need doing up. You have to buy insurance and pay council tax. If you hire a lettings agent, that’ll cost you as well. Sometimes, I wonder why people bother.
Buy-to-let is a real bother
As well as managing the property, you have to find, interview and replace tenants. If they cause trouble, you have to evict them. That’s pretty much impossible right now under temporary rules to protect struggling tenants during the pandemic. None of these are an issue when you buy UK shares.
You can buy UK shares free of tax
You can buy UK shares free of income tax and capital gains tax, inside your Stocks and Shares ISA allowance. By contrast, rental income from tenants is subject to income tax at your marginal rate. You also have to pay capital gains tax when you sell up. It’s a tax nightmare, making it harder to build serious wealth.
But if you make a million in an ISA, it’s tax-free for life!
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Harvey Jones 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.