Should we invest in property or the markets?

05 August 2022

Question by Bernadette

We have some inheritance £150k and money £70k from an investment property recently sold. We have a mortgage of just under £200k on a 5 year fixed rate £1400 a month with about 13 years to go, with about £250k equity and a holiday cottage buy to let in a business with about £80k worth of directors loan. Cottage pays for itself. Both have pensions but these aren't consolidated and won't last long... hubby is 55 this year i've just turned 50. Both working but a good work life balance. We have renovated property and made good money previously. We feel we potentially have another renovation in us. No kids so no real legacy requirements. Should we invest in property or the markets, pay off the mortgage and save the money each month instead. Not ready to retire yet( if we could afford to) but maybe slow down and work less stressful jobs in five years currently home household income around £100k pre tax.


Answered by Annabel Lumsden

Hi Bernadette

Your question about property versus market investment comes up regularly and there are some key aspects to consider. I find the easiest way to do this it to try to view the property purchase in the same way as any other investment. You should think about:

  • Taxation of the profits and of any gain on sale

  • Taxation of any rental income

  • Liquidity – i.e., how easily you could access the capital if you needed to

  • Running costs - i.e., maintenance costs, vacant periods, any mortgage costs

  • Initial costs – i.e., stamp duty, legal fees

  • The anticipated return from rent and capital growth

Purchasing property is something many people consider as part of their financial planning however due to changes to the taxation of any rental income received and tightening up on Landlords requirements it is important that this is done in the correct way and advice is taken.
As you will know, additional stamp duty is payable on a second property at 3% of the full purchase price and this needs to be taken into account when considering this course of action.

If you retained the property and rented this out, you would need to add this income to your tax return each year declaring all income received and pay any tax due. On the sale of the property in the future you would also need to potentially pay capital gains tax (CGT). If you have not already done so, you should also check your CGT position from the recent sale of your investment property.

When investing in the markets, there are various options and without knowing the full picture of your financial circumstances, it’s difficult to confirm which would be the best options for you. I have offered some guidance which will hopefully help.

A tax efficient option for many clients is to consider investment into a Stocks & Shares ISA and linked Collective/General Investment Account. With this type of investment, you would contribute into an investment ISA which could be accessed for income and/or capital when you need it. Ideally, you would only invest money which you do not need access to in the short term (5 years). That said, these investments can be accessed from the outset with no penalty, but if you needed to access it at a low point, you would potentially get back less than you invested.

You each have an ISA allowance of £20,000 per tax year. ISAs grow and can be accessed free of income tax and capital gains tax. They are open ended investments, meaning you can access them at any point with no penalty. Ideally, you would want to leave them invested for at least 5 years and if you have retained sufficient cash, this should be possible.

You can also hold an account called a Collective Investment Account which feeds your ISA each tax year at no additional cost. This can invest in the same way as the ISA but without the preferential tax wrapper. Each tax year, your full ISA allowance can be fed into the ISA account until the Collective Investment Account is fully used up.

With any investment, you would select an investment fund or funds to match your risk profile, responsible investment preferences and timeframe and this is where you would gain the exposure to the markets. There can and will be bumps in the road with the value of the fund but overall, you should see growth in the fund over the medium to long term (5-15 years), although this is not guaranteed.

As with property purchase, you may find that there are initial costs to set up an investment of this nature, especially if you take advice to do this. This amount could be compared to the stamp duty and legal costs associated with property purchase. There are also running costs for investments. This can include fund costs, product costs and ongoing advice. These costs can be compared to the maintenance costs etc associated with property.

As part of your financial review, it is worth looking into your pensions to understand the value of what you have, to make sure they are invested in the right place for you, the costs you are paying to run the schemes and the options you have at retirement. Pensions are another tax efficient way of saving for your future and you could consider topping these up as another option.

When considering paying off the mortgage and saving each month instead, again it can be helpful to view it as a numbers game.

  • Are there penalties to clear the mortgage?

  • What is the interest rate on your borrowing, therefore, what is the saving you would achieve by clearing it?

  • Is the mortgage affordable whilst you are still working?


What potential growth could you achieve by investing the money instead, either through property or market investment?

Once you have the answers to the above questions, the ‘head’ led option should become clearer but the ‘heart’ option to be mortgage free may feel more appealing.

I hope this helps.

Answered by

Annabel Lumsden

Financial Adviser

I am focussed on empowering clients to achieve their goals, whatever they may be. I want to make people feel at ease, some are terrified to approach a financial adviser, so I like to take things at each individual’s pace.