Different people have different reasons for investing. This is then defined even more depending on the individual's attitude towards risk. There are pros and cons for the different types of investing, and again this depends on your ultimate goal. Is it a long term savings plan, or is it to provide an income? Moving even further down the decision process, what are your personal financial circumstances? This will have an impact on how tax efficient the type investment is. So let’s take a look at the pros & cons of investing into property, or a stocks & shares ISA.

Bricks & Mortar

Benefits

You would like to think over time the property can increase in value along with providing you with a regular income. It’s mainly more stable than investing in shares (but not bulletproof). Any rental income can be offset against the mortgage. If it’s a short-term holiday let, you and family can benefit yourselves and these can bring in a greater income than long-term residential lets. Properties can also be placed in a trust or a Limited Company to improve the tax efficiency of your investment.

Drawbacks

Property letting is not suitable for short term investors and the property market can fall as well as rise. Landlords are also subject to tenant-risks i.e. Non-payers or those who cause damage to the property. A void property can also hit hard with no tenant and no income, as you may still have mortgage repayments running alongside. When purchasing you are potentially liable for the stamp duty land tax surcharge which increases your purchase costs. Your investment will be more illiquid than shares.  The property may incur professional lettings fees and will require regular test certificates and maintenance which will reduce your net profits. Furthermore, your net income will be taxable at your marginal rate of income tax. Finally, if sold or gifted, the profit made on the sale of the property maybe liable to capital gains tax.

Stocks & Shares ISA

Benefits

The investment can provide a potential greater return over the medium to long term. The investment is liquid i.e. readily accessible (usually 5-10 working days). They are very tax efficient i.e. free from capital gains and dividend tax and can also provide a regular tax free income, no matter what your marginal rate is! You can pay monthly premiums into the investment if you want to save on a regular basis. You can have a number of different funds to spread the risk that can be switched to match clients attitude towards risk or if individual funds are under performing. You receive protection from the Financial Services Compensation Scheme should the ISA provider collapse (up to the value of £85,000.00).

Drawbacks

This type of investment is not suitable for a short term investor. Investment returns or capital growth is not guaranteed and are best managed with support of professional advisers to monitor the performance of your investments on an ongoing basis, which will incur fees. ISA’s cannot be written into trust and form part of your estate for Inheritance Tax purposes unless invested in shares which qualify for Business Relief such as AIM shares however these are not suitable for all investors due to the additional risks associated with this type of investment . You are also only able to invest £20,000.00 a year into an ISA (this however can run alongside a General Investment if you have surplus capital that you wish to invest and then transfer £20,000.00 each tax-year so to maximise the tax-efficiency of your investments.

If you would like to learn more about this subject or require Independent Financial Advice from our local, experienced, and friendly team, please feel free to contact us on 01788 57 11 22.

The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor. 

PJL Financial Services Limited are authorised and regulated by the Financial Conduct Authority. 

Your home may be at risk if you do not keep up repayments or other loans secured against it.