UK investors who have used up their ISA and pension benefits are turning to buy-to-let properties, new analysis from Rathbones has found.
Rathbones said other popular options include tax-advantaged private business investments such as Venture Capital Trusts (VCTs) and the Enterprise Investment Scheme (EIS).
A survey of 3,092 British adults with investable assets of up to £2.5 million shows that investment behavior changes significantly once tax-efficient savings options have been exhausted, with wealthier investors much more likely to embrace complexity and risk in pursuit of higher returns.
Investment in buy-to-let property increases sharply as wealth increases, from just 4% among investors with £25,000 – £250,000 of investable assets to 35% among investors with more than £2.5 million.
However, Rathbones said buy to let was not a simple sector to invest in.
A statement from Rathbones said: “While buy-to-let remains popular, its appeal has weakened. Our recent analysis shows that house prices have barely kept pace with inflation since 2016, while taxes, regulatory changes and higher financing costs have eroded returns. Many buy-to-let investments are now less attractive on a risk-adjusted basis, especially where leverage is involved.”
Allocations to VCTs and EIS are following a similar trajectory to buy-to-let, rising from 2% at the bottom of the wealth scale to 25% among the wealthiest respondents.
Rathbones senior investment director Isabella Galliers-Pratt said: “Once they have used ISA and pension benefits, the next question we hear from clients is: where is my next pound going? As wealth increases, investors are more willing and able to take on higher levels of risk. Greater financial resilience gives them the confidence to explore opportunities beyond the box.
“The right route depends on time horizon, risk tolerance and personal tax circumstances. It is important to balance the understandable desire to protect investments from taxes and the risks associated with doing so. Paying taxes is not a bad thing; it generally means that your investments have performed well.”