Returns on investing in a pension could be twice as high as investing in buy-to-let property, according to new research.
IG Group, calculates that if an investor purchased a £200,000 property, assuming 3.5% rental yield and 4.5% annual capital growth, they would return 237 per cent over 20 years after capital gains tax.
However, a 40 per cent tax payer could have maxed out contributions to their pension, and if they achieved a growth rate of 6 per cent net of fees over 20 years, returns could be as high as 435 per cent on the post-tax cost needed to purchase the buy-to-let investment.
IG puts the discrepancy down to new tax changes hitting buy-to-let landlords, including mortgage interest relief being set at 20 per cent from 2020 and not the marginal income tax rate, and the 3 per cent second home surcharge for stamp duty.
IG portfolio manager Oliver Smith says: “There is a stark contrast in the tax treatment of a property versus a pension, with pensions winning out by a clear mile. The recent tax changes on buy-to-let properties will make a huge impact on the potential for long-term returns. While these changes are only being fully introduced in 2020, a chill wind is already sweeping through the buy-to-let industry.”