Comparing Gold and Buy-to-Let Investments

Investing in Gold vs Buy-to-Let Schemes

When considering investment opportunities, discerning individuals are presented with a plethora of options to choose from. Two of the most popular investment vehicles are the acquisition of gold and buy-to-let property schemes. Both of these options have been utilized for centuries and possess their own distinct advantages and disadvantages. In this discourse, we shall examine the pros and cons of investing in gold and buy-to-let schemes, and compare the two options, so as to assist in your decision-making process.

Investing in Gold

Investing in gold is a traditional method of preserving wealth and is often considered a safe haven asset. Gold has been used as a store of value for millennia and serves as a hedge against inflation. The price of gold tends to increase when the economy is in a state of turmoil and inflation is on the rise. This is because gold is a tangible asset that holds intrinsic value and does not rely on the performance of a company or government. Gold is also highly liquid, which means that it can be easily bought and sold, making it a popular choice for investors.

Advantages of Investing in Gold

• Inflation hedge: One of the most significant advantages of investing in gold is that it serves as an inflation hedge. As the value of money decreases over time due to inflation, the value of gold tends to increase. This means that investing in gold can help preserve the value of your money over time.
• Store of Value: Gold has always been a store of value and has maintained its value over time. This is why it is often considered a safe haven asset. It is a tangible asset that holds intrinsic value and is not dependent on the performance of a company or government.
• Liquidity: Gold is highly liquid, which means that it can be easily bought and sold. This makes it a popular choice for investors who require the ability to liquidate their investments swiftly.
• Diversification: Investing in gold can also assist in diversifying your portfolio. By incorporating gold in your portfolio, you can spread the risk and reduce the overall volatility of your investments.

Disadvantages of Investing in Gold

• Limited Returns: One of the most significant disadvantages of investing in gold is that the returns on gold are limited compared to other investment options.
• Storage and Insurance Costs: The storage and insurance of gold can also be costly.

Buy-to-Let Schemes

Buy-to-let schemes, on the other hand, are a more recent method of investing. It involves the acquisition of a property, renting it out, and earning income from the rent. This method of investing has become increasingly popular in recent years due to the potential for both income and capital appreciation.

Advantages of Buy-to-Let Schemes

• Income Stream: The rent collected from tenants can be used to cover the mortgage payments and other expenses associated with the property, and any surplus can be used as passive income.
• Potential for Capital Appreciation: Another advantage of buy-to-let schemes is that it has the potential for capital appreciation. Property values tend to increase over time, which means that the value of the property can increase, resulting in potential profits for the investor.
• Income Stream: One of the most prominent advantages of buy-to-let schemes is that it provides a steady income stream. The rent collected from tenants can be used to cover the mortgage payments and other expenses associated with the property, and any surplus can be used as passive income.
• Potential for Capital Appreciation: Another advantage of buy-to-let schemes is that it has the potential for capital appreciation. Property values tend to increase over time, which means that the value of the property can increase, resulting in potential profits for the investor.
• Diversification: As with investing in gold, buy-to-let schemes can also assist in diversifying your portfolio. By incorporating property investments in your portfolio, you can spread the risk and reduce the overall volatility of your investments.

Disadvantages of Buy-to-Let Schemes

• Illiquid Asset: One of the most significant disadvantages of buy-to-let schemes is that it is an illiquid asset. It can take time to sell a property, which can make it difficult for investors to liquidate their investments swiftly.
• Risks of Vacancy, Default, and Property Market Fluctuations: Buy-to-let schemes also come with the risks of vacancy, default, and property market fluctuations. The landlord is also responsible for the maintenance and repairs of the property, which can be costly.
• Cost of Selling: The act of disposing a buy-to-let property can entail a number of costs that may impede the realisation of one's profit margins. These costs may include fees associated with estate agents and legal representatives, as well as the expense of any requisite refurbishments. Nevertheless, among these expenses, Capital Gains Tax (CGT) may be the most substantial. This tax is levied on the profit derived from the sale of an asset, and it is applicable to properties that are not deemed as the principal abode of the owner. For instance, if an individual were to sell a property with a value of £150,000 for £200,000, the £50,000 profit would be subject to CGT.

What's Next for Capital Gains Tax in 2023 & 2024?

On Thursday, 17th of November 2022 the UK government announced their plan to get £55 billion to restore Britain’s economic crisis, with reducing spending cuts of £30 billion and £25 billion in tax hikes. James Hunt was at the centre stage when speaking to Parliament about the new growth plan which focuses on taxation and spending, whilst ensuring that the most vulnerable are protected.

During James Hunt's speech he said the government will lower CGT to £6,000 in April 2023 and potentially as low as £3,000 in April 2024. These changes will have a significant impact on individuals and businesses that possess assets that may be subject to CGT. As the CGT allowance is reduced, more individuals and businesses will be beholden to pay CGT on their investments. This means that many people will have to pay more tax on their profits and will have less capital to invest in other assets. Furthermore, this reduction comes at a time when the UK economy is still recovering from the ramifications of the Covid-19 pandemic.

Deciding Between Gold and Buy-to-Let

In conclusion, both investing in gold and buy-to-let schemes have their own unique advantages and disadvantages. Discerning investors should carefully consider their goals, risk tolerance, and investment horizon before deciding which option is best for them. Additionally, it is worth noting that investing in both gold and buy-to-let schemes can diversify your portfolio and spread the risk, which could be beneficial for long-term financial stability and growth.