Most people are familiar with property. They’ve bought a house, rented an apartment or at least lived in the family home. It’s familiar, you can touch it and the press love talking about property prices, so it’s somewhat ingrained in the British psyche.

As ever with financial planning, it comes down to your objectives and personal situation.

So you want to generate some cash? You can’t sell a brick / window / roof.

Property values only go in one direction, up, correct? That would appear to be the view of many people, but again, it depends – property type, location, price, history etc etc. Those caught-up in the cladding matters are potentially sat on significant liabilities as an example.

Tax is something that most people dislike paying. Tax incentives for buy-to-let landlords have reduced markedly in recent years, such as offsetting mortgage interest and the additional stamp duty rate for second homes. Assuming the property rises in value, there is likely to be a capital gains tax (CGT) liability, which for residential property, attracts CGT at up to 28%, over the annual CGT  allowance, which is being reduced from the 23/24 tax year to £6,000 and £3,000 in 24/25. The net profit generated from your property income will also be taxed at your highest marginal rate.

Investing in stocks & shares is possible through various account types, but the most common account types are Individual Savings Accounts (ISAs) and pensions.

The price of individual stocks & shares (whether a fund or individual company) can change frequently – both up and down. You’re most likely aware of the risk warnings associated with investing, where you can lose capital. Whilst he’s an outlier, Warren Buffett is probably one of the best-known investors. He looks to invest in companies for the long term and he has stuck to that mantra, which has helped him become a billionaire.

Tax

ISAs – any income and/or gains generated within an ISA are completely tax free. Withdrawals are tax free. Simple enough? The limitation is that each adult has a £20,000 contribution allowance per tax year. There are various types of ISA – they’re most commonly held as cash or stocks & shares – the allowances are the same.

Pensions – any income or gains generated within the pension are tax free. Withdrawing money from a pension is potentially taxable. However, many pensions facilitate a 25% tax free lump sum, which you could take in stages. You can currently only access a pension from age 55. So there are rules & restrictions. The other additional benefit from pensions, is the tax relief on contributions. Even if you don’t pay tax, you can contribute to a pension and receive tax relief (a cash contribution of £2,880 would become £3,600 within a pension – that’s £720 of free money!). For higher & additional rate tax payers, pension contributions save you tax at your highest rate (e.g. 40% or 45% respectively).

Flexibility

You want £10k for a holiday? Assuming you’re 55+, you could make a withdrawal from either a pension &/or ISA. Yes, with a pension, there are potential tax consequences to consider, but the flexibility is there.

You could re-mortgage a property to release equity, but it’s rarely a quick exercise and there will of course be costs to do this.

Costs & admin

Properties need maintaining – you could do this yourself of course, otherwise you’ll need to pay someone.

You’ll may need someone to manage the property too, meaning paying an agent.

ISAs & Pensions

Similarly to property, your savings will need ‘maintaining’ & unless you manage them yourself, you’ll need to pay someone to do this. If you do pay for advice, seek a regulated, independent financial advisor. You can expect to receive advice to assist your wider financial position and not just the investments.

Summary

This is not a pro/con document nor advice. Investing in residential property does suit some people, irrespective of the potential flexibility and tax consequences. If you want to build flexible, tax efficient pots of money, a mix of pensions and ISAs for many people, built over a period of time, provide the opportunity to deliver.

Those four reasons for considering stocks & shares vs residential property

1. Favourable tax opportunities (ISAs + Pensions)
2. No large capital outlay
3. Flexible accessibility
4. Diversify your investments

Thanks for reading.