Property tax UK – what will you need to pay in 2023. That will be the topic of today’s article (updated on Jan. 3, 2023).
I will speak from the perspective of both British expats living overseas and non-British people living in the UK.
The article will also answer some commonly asked questions about property investments more generally, such as is now a good time to invest?
If you have any questions and/or are interested in property investments, you can email me (email@example.com), use the WhatsApp function or this contact me page.
Please be aware that taxes are always changing when it comes to property. This article is merely true at the time of writing and it is always sensible to get professional tax advice.
I will try to update this article, as much as possible, when rules change in the future.
In one of the updates made during April 2020, I updated the article slightly due to the ongoing economic and healthcare crises which have affected the world.
In the years ahead, we can expect increased taxes on property in the UK, due to the huge hole in government finances caused by the pandemic.
Table of Contents
Property Tax UK: How does it look like?
The property taxes in the UK are “outdated and favour a wealthy elite,” British daily newspaper The Guardian said, citing a 2022 study by the Organisation of Economic Cooperation and Development (OECD).
The OECD stated that nations that sought to stimulate economic growth by slashing taxes on property transactions were contributing to “sky-high prices” and backing sections of society that were already affluent, according to the Guardian.
The UK government has recently executed certain cuts on the stamp duty tax, which faced oppositions from certain members of the parliament who claimed that it was not the appropriate time to reduce the amount of stamp duty. Some parliament members also anticipate that landlords and those who own second homes would benefit the most from the measure.
Property Tax UK: Capital Gains Taxes for UK Expats Living Overseas
Capital Gains is the tax which you pay once you dispose of the asset – selling the house in this case.
The total value is made by taking the purchase property of the home, and working out how much gains has made been.
For example, if your property cost 200,000 pounds and you sell it for 300,000 pounds, the tax is usually charged on the 100,000 pounds capital gains.
The capital gain threshold is complicated, however. For residential property it is charged at 28%, assuming the total taxable gains and income are above the income tax basic rate band.
However, below that limit, the rate is 18% for trustees. For non-residential property, for example office buildings, and other assets, the rates are 10% and 20% for individual taxpayers.
New updated capital gains tax rules from 2015
There used to be a loophole in UK law, which allowed non-residents not to pay UK capital gains taxes.
However, since 2015, the rules changed. Those rules affect buy-to-let landlords the most.
So, the capital gains rate can be as high as 28% for expats.
Does leaving the UK and dumping the assets stop capital gains taxes?
Many years ago, expats who simply leave the UK for a complete tax year, could reduce their tax burden.
The rules have now changed. These days, you need to be a non-resident for a minimum of five UK tax years to take advantage of these rules.
In effect, even though you are deemed a non-resident for income tax purposes, you are considered a temporarily non-resident for capital gains tax purposes for up to five complete tax years.
You are still required to pay capital gains tax, regardless of the length of time you’ve spent living outside of the UK or whether or not you ever plan to go back.
What types of property does the new rule cover?
The new tax is applicable to the disposal of all residential property located in the UK, such as residential property that is used as an investment, property that is made available for rent, several residences that are offloaded at the same time, as well as any interest you own in off-plan properties.
What are some of the capital gains reliefs?
A lot of the reliefs are for businesses. For example:
- Business incorporation relief – Available when you transfer your assets into a public limited company (PLC). However, due to the costs involved, this option is better for larger landlords that have big portfolios of properties. For smaller landlords, this isn’t the best option, due to the costs involved.
- Holdover gift relief – on some gifts related to business assets, or gifts made into trusts, can result in taxes not being payable until the person gets rid of the asset
- Entrepreneurs relief on property – which can reduce the taxes down to 10% when disposing of all or parts of a business
There are many considerations and these rules usually change on a yearly basis.
How about capital losses?
Capital losses made on a chargeable transaction can be netted off against the capital gains made in the same tax year.
How about some other exceptions on capital gains?
Other exceptions on taxes include:
- Your primary residence. Your primary residency is usually not taxed as heavily as buy-to-let properties.
- Transfers of assets between legally married people.
- You have not rented out any portion of it, nor have you used any portion of it for commercial purposes.
- The entire property, including the buildings, is less than 5,000 square meters.
This is due to the fact that you are eligible for an automatic tax relief known as Private Residence Relief, so you don’t need to take any action at all.
What are the penalties for failing to report capital gains taxes?
If you fail to make a capital gains declaration to HM Revenue and Customs (HMRC) within 30 days, you can face penalties – even if no capital gains are due.
Property Tax UK: What are the other taxes apart from capital gains?
The main taxes on property are:
When you acquire residential property in England and Northern Ireland as a resident, you typically have to pay Stamp Duty Land Tax (SDLT) on growing portions of the property’s value.
Note that only properties valued at more than 250,000 pounds are subject to SDLT.
Your total cost is based on the following factors: when you initially purchased the home, how much money you spent on it, and if you are qualified to receive relief or an exemption from the requirement.
Assuming you don’t have any other property in the UK, the rates are:
- Property price of up to 250,000 pounds = zero
- property price between 250,001 pounds and 925,0000 pounds = 5%
- property price between 925,001 pounds and 1.5 million pounds = 10%
- Property price over 1.5 million pounds = 12%
If you own additional residential property, you will typically be required to pay an additional 3% on top of these rates.
Remember though, that you only pay on the amount above the threshold. For example, if your house costs 300,000 pounds, you wouldn’t pay 5% on the whole amount.
Instead, you would pay 5% on the 50,000 pounds above the threshold.
In addition to these bands, from 2016, the UK Government announced new bands for buy-to-let landlords.
This means buy-to-let landlords will pay an addition 3% over the threshold.
These rates are:
- Real estate under 40,000 pounds = 0%
- Real estate between 0 pound and 125,000 pounds = 3% assuming the property isn’t worth less than 40k
- Real estate between 125,000 pounds and 250,000 pounds = 5%
- Real estate between 250,000 pounds and 925,0000 pounds = 8%
- Real estate between 925,000 pounds and 1.5 million pounds = 13%
- Real estate over 1.5 million pounds = 15%
This tax is impossible to completely avoid in most cases. This is because any individual buying or receiving a residential property is subject to the tax. So even non-residents expats, pay the rates.
In some cases, you can transfer a property’s deeds as a gift or in a will. This type of estate planning can reduce the taxes in some situations.
Will you pay Stamp Duty Land Tax on your first home acquisition?
No, you won’t pay SLDT if the property you’re buying is your first home and if it’s worth not more than 425,000 pounds.
However, you’ll pay a 5% SLDT on the portion from 425,001 pounds to 625,000 pounds.
The tax relief will not be applied even if it’s your first home if the price of such property stands at more than 625,000 pounds.
Do you have to pay 3% more Stamp Duty Land Tax for home replacement purchase?
If the home you are selling was your primary residence and you are purchasing a new home to replace the one you have already sold, you will not have to pay the additional 3% in SDLT.
If you fail to dispose of your primary residence by the time you finish purchasing your new home, you will be subject to paying higher interest rates. This is because you own two different pieces of real estate.
In the event that you offload your previous primary residence within the allotted time frame of three years, you will be eligible to submit a claim for a refund.
Should it take you longer than three years to dispose of your previous primary residence, though, you could still be eligible for a refund of the additional 3% SDLT only if all of the following conditions are met:
- your new home acquisition was executed on or after Jan. 1, 2017
- extenuating circumstances prevented you from offloading your old home, such as restraints imposed by the government because of the coronavirus
- your previous residence has now been disposed
How much Stamp Duty Land Tax do you owe if you’re not a UK resident?
For the purposes of SDLT, you are considered not a UK resident if within the 12 months prior to your acquisition you were not present in the UK for a minimum of six months.
If you are purchasing a residential property in England or Northern Ireland, you will typically be subject to a surcharge that is equal to 2% of the purchase price.
It’s possible that you won’t have to pay a mark-up if you buy certain kinds of property, engage in certain kinds of transactions, or fall into a certain buyer category.
If you are required to pay the surcharge, you will also be responsible for paying any other SDLT rates that may be applicable, such as if you currently own a property and you’re purchasing another property, as well as if you’re a first-time buyer.
What changes to the Stamp Duty Land Tax have been recently applied by the UK government?
On October 24, 2022, the Stamp Duty Land Tax (Reduction) Bill 2022-23 was presented to the House of Commons for the first time.
The Stamp Duty Land Tax on residential property would proceed to be paid on an increased number of thresholds if the Bill were to become law. This would result in a reduction in the total amount of SDLT that many home buyers would have to pay.
Some of the changes are as follows:
The nil rate band (NRB), the threshold which stamp duty on land transactions is not required to be paid, was raised to 250,000 pounds from 125,000 pounds as a result of this change. (This increase was already reflected in the rates I have outlined above.)
An increase in the nil rate band to 425,000 pounds from 300,000 pounds for first-time buyers’ relief.
A rise to 625,000 pounds from 500,000 pounds in the maximum amount that first-time purchasers can spend on a home and still be qualified for relief.
The relief is proposed to be terminated on March 31, 2025, pending a vote by the House of Commons.
Even though your main income from work or a business isn’t usually subject to UK taxes, assuming you are an expat, you do have to pay income taxes on rent from properties.
Your annual tax liability is directly proportional to the amount of your income that is in excess of your personal allowance for the tax year and how much of your income is subject to each of the applicable tax brackets.
What is the so-called tax-free personal allowance?
The amount of your annual income which you are exempt from having to pay tax is known as your “personal allowance,” and it currently stands at 12,570 pounds.
If you also qualify for the Marriage Allowance or the Blind Person’s Allowance, your Personal Allowance could potentially be increased. If your annual income is more than 100,000 pounds, your personal allowance will be reduced.
Note that if your taxable income is greater than 125,140 pounds, you will not be eligible for a personal allowance.
What are other tax bands?
Under the basic rate tax band, incomes of 12,571 pounds to 50,270 pounds will be subject to a 20% tax rate. Meanwhile, a 40% and 45% tax rate will respectively be imposed on incomes of 50,271 pounds to 150,000 pounds and more than 150,000 pounds under the higher rate tax band and additional rate tax band.
So, if you have 1-2 smaller properties, with minimal rental income, you are less likely to pay income tax.
You do, however, need to file taxes in the UK on your rental properties.
There are also ways to reduce the tax rates, including deducting costs including mortgage interest before calculating the net profits.
Other deductions include maintenance costs, property agent fees, insurance premiums, as well as council tax and utility bills if applicable.
However, that is about to change. From April 2020, the tax relief on financial costs will be restricted to the 20% basic rate for taxpayers. Instead of lowering the amount of taxable rental income, the relief will be provided in the form of a decrease in the amount of tax liability.
From this point forward, no one will be eligible for a tax cut of more than 20%. So, landlords with more expensive houses are likely to suffer, as a result of the changes.
What of non-resident landlords?
HM Revenue and Customs came up with the non-resident landlord scheme in order to prevent non-UK residents who rent out a property in the UK under their names from dodging income tax.
You will be considered to be a non-resident landlord if you receive rental income from the UK but you usually live outside of its territory.
Individuals, corporations, and trustees are all considered to be landlords for the purposes of this scheme. When it comes to the division of the rental income among partners in a partnership, each partner’s portion of the pie is handled exactly the same way as if they were their own independent landlord.
Under the scheme, if the rent per week is more than 100 pounds, then tax must be subtracted from the rental income by the letting agent or by the tenants prior to their payment of their rent.
You, as a non-resident landlord, have the ability to submit a request in order to have your rent paid to you without any tax being withheld from it. This is only possible, however, if you fulfill the following eligibility requirements:
- your financial obligations to the UK government are updated
- you have never been subject to any tax obligations to the UK government
- you do not anticipate having any tax obligations in the UK for the current tax year, which is the year for which the application is being submitted.
You are required to submit your request up to three months prior to your planned departure from the UK; however, if you have already left the UK, you are free to submit your application at any time.
Your income will still be taxable, but you will be responsible for filing a self-assessment tax return rather than paying taxes directly to the government. This is the case even if you are granted tax-exempt status as a non-resident landlord.
The Annual Tax on Enveloped Dwellings (ATED)
This tax came in, in effect, trying to make it less tax-efficient to hold high-value UK residential property through a company, rather than individual name.
Other measures relating to high-value residential property in the UK are incorporated as part of the anti-avoidance package, which includes the following:
- An increased rate of Stamp Duty Land Tax of 15% for non-natural persons (NNPs) on the purchase of high-value residential property in the UK
- A charge imposed on NNPs for capital gains tax on sales of high-value residential property in the UK
Companies, partnerships that include company members, as well as collective investment vehicles like a unit trust or an open-ended investment vehicle are examples of non-natural persons that exist within the parameters of this discussion.
Like the other taxes, the annual tax on enveloped dwellings increases progressively. What is different about this tax, is that it is charged as a flat, rather than percentage, fee.
How much annual tax on enveloped dwellings do you have to pay?
A banding system that takes into account the value of your property is used to arrive at the total amount that you will be responsible for paying per year.
The amount chargeable for April 1, 2022 to March 31, 2023 stands at:
- 3,800 pounds on property worth over 500,000 pounds up to 1 million pounds
- 7,700 pounds on property valued at more than 1 million pounds up to 2 million pounds
- 26,050 pounds on property worth over 2 million pounds up to 5 million pounds
- 60,900 pounds valued at more than 5 million pounds up to 10 million pounds
- 122,250 pounds on property worth over 10 million pounds up to 20 million pounds
- 244,750 pounds on property valued at more than 20 million pounds.
Meanwhile, the amount chargeable for April 1, 2023 to March 31, 2024 stands at:
- 4,150 pounds on property worth over 500,000 pounds up to 1 million pounds
- 8,450 pounds on property valued at more than 1 million pounds up to 2 million pounds
- 28,650 pounds on property worth over 2 million pounds up to 5 million pounds
- 67,050 pounds on property valued at more than 5 million pounds up to 10 million pounds
- 134,550 pounds on property worth over 10 million pounds up to 20 million pounds
- 269,450 pounds on property valued at more than 20 million pounds.
Are there reliefs and exemptions under ATED?
You might be eligible for relief if your property is any of the following:
- A farmhouse
- let to a third party for commercial purposes and is unoccupied by anyone who’s related to the owner
- accessible to the public for 28 days per annum, minimum
- being developed a real estate developer for reselling
- possessed by a property trader as the stock of the business for reselling purpose
- re-claimed by a financial body due to its money lending business
- bought as pat of a regulated home reversion scheme
- used by a trading business for living accommodations to certain staff
- owned by a registered social housing provider or a qualified housing co-operative
If you are a charitable organization that uses the property for philanthropic purposes, you won’t have to file a return on ATED.
I have previously written about domicile vs residency. Just because you are resident outside the UK, domicile is harder to change.
HMRC usually deems you domiciled in the UK, if:
- You were raised in the UK and you retain property in the UK
- If your parents considered the UK their permanent home when you were born
So, your worldwide estate can be considered taxable by HMRC, if you meet these criteria and your assets are worth more than 325,000 pounds when you die.
Your heirs might have to pay 40% on amounts greater than 325,000 pounds no matter where you are in the world.
There are ways to reduce your tax liability, including if you give money to charity.
When a residence is passed on after a person’s death to a direct descendant, such as a child (including a step-child, adopted child, or foster child, plus their lineal descendants), the transferable main residence allowance kicks in.
The transferable main residence allowance came in at 100,000 pounds in 2017 to 2018, and now stands at 175,000 pounds in 2022 to 2023.
This takes into consideration your main residence, so you can leave up to 500,000 pounds tax free, or 1 million pounds for a couple.
It is important to keep in mind that this transferable main residence allowance will be subject to a gradual reduction from estates that have a net value of more than 2 million pounds. If you go above this limit, you will be subject to a withdrawal fee of one pound for every two pounds you go over.
Frequently asked questions
This section will cover some frequently asked questions (FAQs)
How about council tax?
This is payable by the tenant but of course, if your property is empty, you as the landlord need to pay.
Council tax depends on where you live in the country – different council tax at different rates.
If you are over the age of 18, you are often required to pay Council Tax.
At least two adults are required to be counted on a property’s Council Tax assessment for it to be considered fully occupied. When two people marry and move in together, they take on a joint financial responsibility to settle such tax.
If your property has been unoccupied for more than two years, the local government may assess an additional sum of council tax, known as a premium.
The length of time that the home has been unoccupied will determine how much you are charged for it. If your home has been unoccupied for a decade or more, you may be subject to a Council Tax surcharge that is up to four times the standard amount.
You will not be required to pay the premium for an empty property if you are in the armed forces, and as part of your job, you are required to relocate into armed forces accommodation; or if the house that is now vacant is an annex.
If you are selling a home on behalf of a deceased owner, you will not be required to pay Council Tax until after you have obtained probate as long as the property continues to be unoccupied.
You could be eligible for a council tax exemption for an additional six months after the probate is granted, if the property is vacant and if it is still owned and registered under the deceased person’s name.
When a property has no one living in it, the local government does not send a bill for the council tax. They consist of dwellings such as:
- of a person who is incarcerated
- of an individual who has moved into a care home or hospital
- repossessed or derelict property
- empty because they’ve been compulsory acquired and up for demolishing.
Can you get your council tax slashed?
If you are on a low income or receive benefits, you may be able to get a reduction in the amount of council tax you have to pay. There is a chance that your charge will be cut by a hundred percent.
You are eligible to apply for tax cut regardless of whether you own your home, rent, are employed, or are jobless.
The advantages you receive are determined by factors such as the location of your home; your personal background like your income, number of children, benefits, and residency status; your savings, pensions, and the income of your partner; if your children reside with you; and if you have other adults living with you.
You can also qualify for council tax reduction if you or someone who resides with you have a severe mental disability.
How about expat mortgages?
Expat mortgages have gotten progressively harder to get, at a good rate. Some decent providers do still accept British expats though, and I can put clients in contact with them.
In the video below I explain how easy it is to get expat mortgages:
How about ISAs and other tax-efficient investments?
Individual Savings Accounts (ISAs) are available to UK residents, regardless of whether you are British or an expat living in the UK.
I explain more here:
How about for non-domiciled foreign national, or expat, living in the UK?
This article has mainly considered UK expats living overseas, but hasn’t focused as much as non-doms and expats living in the UK.
Most non-doms living in the UK are foreign-nationals but can still get a favorable tax regime (although less favorable than before) in return for paying some fees.
For most non-doms, you will be considered tax residents in the UK. Your domicile will depend on your country of birth.
As a UK resident non-domiciled person, you have the option of being taxed on an arising basis and remittance basis.
The remittance basis taxes you only on your UK income and gains and only foreign income and gains you bring back to the UK.
You are then charged for this status. This charge is 30,000 pounds if you have been resident for seven out of the last nine years. It goes up progressively to 90,000 pounds if you have been resident for 17 out of the last 20 years.
In comparison, the arising basis means you need to pay tax on your worldwide income and gains when it arises.
So how much capital gains, income tax and other taxes you need to pay on your UK property depends on which kind of non-dom you are and several other things.
For UK expats who aren’t non doms, the tax situation is usually simpler. Unless you are an American or a few other countries with complex tax regimes, you are usually taxed at the same rates as British residents and not double taxed by your country of origin.
Are these taxes likely to become more severe?
Regardless of which political party is in power, taxes and admin on property in the UK seems to get progressively more difficult.
Nobody knows what the future will hold, but I doubt it will become easier to own property as an expat.
How about double taxation for expats on property income and double tax treaties?
If a person chooses to move from any of the countries belonging to Europe, they are protected from double taxation by the Double Tax Treaty (the treaties between European countries and the United Kingdom).
Many other countries of the world which are not European countries have tax treaties with the United Kingdom in order to avoid double taxation, such as Canada, China, India, Japan, and the United States of America.
It is better to check if your country has such a treaty with the UK.
What are some of the other challenges about buying property?
In some countries such as China and South Africa, there is the additional issue of sending money out of the country in a cost-efficient way.
Beyond that, it is now much harder to get 100% or even 95% mortgages in the UK compared to pre-2008.
Even though 100% mortgages got a bad name during the financial crisis, they had the advantage of using leverage to your advantage.
Now you need to put down a 30,000, 50,000 or even 100,000+GBP deposit. As property capital appreciation is usually much less than stock markets, this is an indirect loss.
For example, if you would have put that same 100,000 pounds into the US stock market (the S&P500) one year ago, it would be worth 130,000 pounds now. Ten years ago, that same 100,000 pounds would have been worth over 300,000 pounds, if invested in the same market.
That might be an extreme example because we are coming off from a great decade in markets.
In general, however, you should want to put down as little money as possible on day 1 and invest the rest into global markets for the long term. That is assuming the mortgage is affordable of course.
Additionally, you often need to find a professional firm to look after your property and find tenants.
Many professional property management firms exist in the UK, of course, but they don’t come for free, typically charging over 1% per year (and much more in some cases) for their services.
This fee will further reduce your net returns.
Is the UK property market due for a rebound?
It is a misconception that the UK property market as a whole has had a great time of late.
In fact, real UK house prices are still lower than in 2007-2009 across the country, with the exception of London and a few other areas.
Nobody knows what the future will hold. It does appear that the Midlands and the North are due for an increase in property prices, relative to London and the South East.
Is Brexit likely to affect UK property prices?
Nobody knows. Brexit has thus far had a far bigger impact on London and the luxury end of the market, as more expats in the UK have been recalled to Paris, Frankfurt and beyond.
Parts of the UK which are less dependent on global trade haven’t been affected, with recent strong performances in the North.
Nobody knows what the future will hold for the UK’s economy though, and the North’s property performance will be partly related to HS2 and other government infrastructure projects.
After the General Election and Brexit have bought some certainly back to investors, it does appear the UK property market is stabilizing, with prices rising at their fastest level in 14 months in January 2020.
The rises do mask some regional differences, with Edinburgh gaining by 6.1% year on year and London by just 1.9%.
What are the biggest mistakes property investors make?
Probably the biggest mistake I have seen is only considering the property capital appreciation or depreciation.
Property is in many ways more like running your own business than a pure investment, and HMRC and many other tax authorities consider it so.
In other words, you have revenues and costs, and your total returns are highly dependent on rental yields.
They are also dependent on using leverage from the mortgage. Even though debt has its risks, it can improve returns.
Will the ongoing global health and economic crisis affect UK property?
Of course, property markets are more likely to be affected than liquid assets for some obvious reasons; property is often funded on debt (mortgages) and relies on the face-to-face economy.
With property, it could be seen as an opportunity if house prices fall, assuming that you are cash rich.
As this virus could last, indirectly, for a while, it could make sense to delay any debt-related purchase.
Does investing in emerging market property make sense rather than the UK?
It can do make sense but remember that valuations are now high in countless emerging markets, with the exception of certain parts of Eastern Europe and Central America.
You also have the additional risks of countless cultural and legal differences that you might have not factored in when buying property overseas.
For example, in China and many Asian countries, people don’t like “second hand houses” unlike Brits that typically like to view a house before purchase.
This is one reason why UK off-plan property sells so well in China, Singapore and Hong Kong. This cultural norm, however, makes it harder to sell your property, if you buy in some of these markets.
I have lost count of the number of expats that have believed that they are sitting on a huge profit, only to discover that they can’t sell their house or land in Cambodia, China, Indonesia and countless other countries.
One example which sticks in my head is an associate of mine who boasted to me about his 200%-300% returns in Indonesian property and Cambodian land over a five-year time horizon.
He discovered many years later that he couldn’t sell the plots easily and is currently considering just using them as passive income instruments through rent.
What’s your main service areas?
Property and tax are not my service areas – but tax-efficient investments are, starting from $75,000 (50,000 pounds) on the lump sum side, and $750 a month for monthly investors.
It is also possible to get second residencies in some countries through investments and fixed deposits into bank accounts.
Property Tax UK: Conclusion
UK property is increasingly getting taxed more heavily. Many of the tax advantages for non-residents and UK expats have been closed.
It is, therefore, increasing difficult to invest in UK property in a tax-efficient way, especially for smaller landlords.
As tax on property is a complicated subject, which often changes on a yearly basis after every UK budget, proper professional tax advice is often needed.
As opposed to financial investments for expats, property is a much more complicated topic. This complexity can result in some unexpected tax bills.
For expats with bigger estates that can be liable for huge inheritance taxes, regardless of their residency, it makes sense to have a review of your investment situation to reduce the bills for your heirs.
For all of the faults of UK property, it still is a safer way to invest than emerging market property and land.
My answers on Quora.com have received over 222.2 million answer views over the last few years, making me the most viewed author globally on financial matters on the social media website.
In the answers below, I discuss:
- What is my favourite stock strategy and why?
- How common are “rags to riches stories”, and how should we define riches anyway?
- Should people invest in one go, as a lump sum, or monthly invest?
- Do people really sacrifice their health for wealth?
Below is a preview of the article
We are on the second day of 2021. This time last year, few had heard of the coronavirus, let alone lockdowns.
By late February and March, there was panic in the stock markets and panic buying in the supermarkets:
People were saying what they always say……this time is different! It was said in the 1930s, when Hitler was rising to power, WW2 was occurring, 9/11 happened and 2008–2009 was in the headlines.
I am sure it will happen during the next crisis too. Anyway, what happened during 2020?
- US Stock markets were up over 17% in general, with the Nasdaq outperforming, up 43%, the highest for 11 years
- Many European markets which haven’t done particular well recently, like the Danish or Finnish market, did very well.
- Underperforming Asian markets like the Taiwanese, Chinese and South Korean markets did well. Stocks in South Korea were up 37% on average – making it the best performing market of the year.
- The worst performing markets were in places like Brazil and the UK.
- Tesla was up 700%, with some other stocks up by over 1000%.
- The Nasdaq doubled from the worst of the crisis in early March, with most major indexes up 60%-90% on March.
- The Japanese stock market, the Nikkei, also performed well.
- Short-term government bonds outperformed gold, silver and pretty much every other asset in the brief period where markets were panicking.
- The best time for stock markets was in early-mid November, despite a disputed US election and a second European lockdown. People forget that now. They assume markets soared as the vaccine was discovered in November. They did increase after that, but they were rising in November in any case. So just like in 2016 when people were amazed that markets soared after Trump’s victory, people were taken by surprise by skyrocketing markets in the face of a US election result which was unclear for days.
I don’t know anybody who managed to predict even half of these trends. I do know some sensible people who said things like “don’t panic” and “nobody can predict the near-term future”.
I said it many times in 2020 and for years beforehand. So much so, that most of my followers know the advice in advance.
So my favourite stock market strategies are quite boring. They are:
- Be diversified. Every dog has its day. The South Korean stock market had its day in 2020, as did the Nasdaq and some others. Over time, that will change. The UK and Japanese markets might outperform this year or in 2022, as an example.
- Buy and hold long-term.
- Buy the whole market through ETFs and keep individual picks down to 10% at most. Purchase both stocks and bonds, so I can rebalance if a crash happens, and manage risk.
- Reinvest dividends
- Don’t be put off if an investment isn’t doing well for a few years, or get too excited by short-term performance.
- Never speculate.
If you do that, you can beat 90%+ of people long-term.
Click on the link below to read more: