Buying the best UK shares after the market crash may not be an appealing idea for many investors. After all, many FTSE 100 and FTSE 250 shares face uncertain futures that could lead to paper losses in the short run.
However, over the long run, an ISA portfolio of British stocks could outperform buy-to-let investments. As such, investing your hard-earned cash in the stock market may be a better idea than purchasing a buy-to-let property at the present time.
Buy-to-let property prospects
While buy-to-let property prices may be rising at a faster pace than the best UK shares right now, this trend may not continue in the long run. House prices are being supported by very favourable government policies such as Help to Buy and stamp duty relief. They’re both expected to be temporary policies. When they come to an end, affordability may become more challenging for many first-time buyers. This may naturally cause a slowdown in the rate of house price growth.
Similarly, the prospects for rents across much of the UK could be somewhat challenging. Rising unemployment may mean rental growth is stifled. Meanwhile, buy-to-let investors with a small number of properties could experience difficulties with issues such as non-payment of rent during a difficult economic period. This may reduce overall returns for an extended period of time.
Buying the best UK shares
By contrast, the best UK shares appear to have sound long-term growth prospects. Many British stocks have solid market positions that could enable them to generate growing profitability in the coming years. They also have solid balance sheets in many cases that mean short-term risks are unlikely to lead to severe financial challenges.
Since many high-quality stocks currently trade at low prices, they may also offer greater capital growth potential than buy-to-let properties. In fact, sectors such as telecoms, retail and banking remain very unpopular among investors. This may present opportunities for those investors who have a long-term time horizon and can live with a volatile performance from their portfolio in the short run.
Stocks and Shares ISA
Another reason to buy the best UK shares rather than buy-to-let property is their tax treatment. Shares purchased in a Stocks and Shares ISA are exempt from tax. Therefore, your net return is the same as your gross return. However, buy-to-let property returns are currently taxed. This may mean a generous before-tax return becomes far less appealing on an after-tax basis.
Furthermore, diversifying across a range of stocks is far easier than building a portfolio of buy-to-let properties. As such, the stock market is accessible to a wider range of investors, all of whom could benefit from a likely long-term recovery for the stock market after the 2020 market crash.