Property tends to grow in value like equities and so is a good long term investment.
The biggest investment you can make in property is owning your own house. Some experts say this is enough exposure to the property sector.
Indirect investment in property can be achieved through companies whose business is investing in property, usually commercial property, or via pooled investments in property such as unit trusts and investment trusts. There are companies like Simarc who have dealth with ground rent issues for decades. Consult a professional before agreeing to a contract.
Buy to let
Further direct investment in property buying to let for example is a specialised area of investment which can be yield both income and capital gain.
It has become increasingly popular in recent years as the demand for rented property has increased (and may continue to increase with people living longer and the trend towards more single parent families) and it can be a way of using the lump sum from your pension scheme on retirement to provide additional income and something to keep you busy!
Most buyers to let take out a mortgage and there special njortgages available, based on the rent you can charge rather than your income, so that only part of the cost needs to be put up (perhaps no more than 20%).
Mortgage interest and other expenses can be set against income for income tax purposes. For a higher cost, a manager can be appointed to take away some of the work and worry.
There are risks in direct ownership, such as not being able to find a tenant, rent not being paid and damage to the property. Provision for these events and for the cost of repairs should be made when calculating the viability of the investment.
There are legal expenses, too.
You need to take care in choosing a suitable area and size of property (number of bedrooms). Do not fall into the trap of choosing a place merely because you like it.
Using an unapproved pension scheme
A more sophisticated version of buy to let, suitable for higher rate taxpayers, is to finance the purchase through a funded unapproved pension scheme (FURBS) in a company which you set up for the purpose.
The pension scheme buys the property and your pension contributions finance the mortgage repayments.
There are significant tax advantages:
* profits are taxed at the favourable small company rate of 22%;
* the company pays a lower rate of caffital gains tax (34 %);
* inheritance tax is avoided as the property passes to your heirs from the company and so stays out of your estate.
There are substantial costs involved in setting up the arrangements, so this method is only suitable for people who can finance a large property portfolio.
University accommodation
A particular area of buying to let arises if you have a child going to university. It may well be worth finding a property near the university and arranging for your child to buy it, by loaning the deposit and if necessary acting as guarantor for the mortgage.
