Compared with traditional buy-to-let investing, the fund compares favourably for the following reasons:
Lower risk: The fund offers greater diversification than buy-to-let, spreading the risk of property ownership across a large number of tenants, property types and locations, rather than it being concentrated in one or two properties in a single area.
Buying power: As a large investor, the fund is also able to acquire assets through bulk-purchases from developers at discounts to open market value, providing additional return to investors.
Value for money: The fund costs include all property management and maintenance as well as tenant liaison, making it hassle-free for investors, compared to a direct buy-to-let investment.
Tax efficiency*: Unlike direct buy-to-let, the fund can be held in ISAs and SIPPs. Outside of these tax-advantaged wrappers, capital gains are not subject to the 8% Capital Gains Tax Surcharge which apply to buy-to-let properties. Buy-to-let investors also have to sell an entire property – perhaps worth hundreds of thousands of pounds – in order to realise any capital gain, whereas an investor in the fund could choose to cash in just some of their shares to keep within annual Capital Gains Tax allowances each year.
*Taxation information is based on Hearthstone’s understanding of legislation in force as at October 2019. Legislation may change, and tax and trust law may be open to differing interpretation. The impact of taxation will depend on individual circumstances. Potential investors should seek advice from their financial adviser or tax specialist before investing.