Based on my personal financial situation, I think a Stocks and Shares ISA is one of the best ways to own UK shares. These products may not be suitable for all investors.
Stocks and Shares ISA benefits
ISAs are very much like traditional share-dealing accounts, with a few key differences. Investors can only put £20,000 every tax year into one of these wrappers for a start. Any unused allowance cannot be carried over into different years.
What’s more, money withdrawn during the year also counts as a deposit. So if I put £1,000 in at the beginning of the tax year in April, and then withdrew this money at the end of the month, I would only have £19,000 of my allowance remaining. This is the standard set-up. These limitations mean ISAs may not be suitable for every investor.
However, some providers offer flexible Stocks and Shares ISAs. These products allow unlimited withdrawals and contributions as long as the total deposit for the tax year does not exceed £20,000.
But the biggest benefit of these products, in my opinion, are the tax advantages. Any investments owned in an ISA wrapper do not attract income or capital gains taxes, at this point. That’s why I do most of my investing in ISA wrappers. The tax benefits are desirable. This is based on my own individual tax situation. Potential dividend and capital gains taxes on assets held outside of an ISA wrapper will vary from person-to-person.
Beaten down UK shares
I own a diversified basket of UK shares inside my Stocks and Shares ISA. And I have been considering buying some more to try and capitalise on the world’s recovery from the coronavirus crisis.
I have been looking at two organisations, in particular, InterContinental Hotels Group and Compass Group. The pandemic has severely impacted these companies. The closure of hotels around the world has caused enormous disruption at InterContinental. Revenue per available room declined 53% year-on-year during the third quarter of 2020.
Meanwhile, at the world’s largest catering group, Compass, operating profit declined a staggering 70% in its financial year ending September 30.
However, despite these setbacks, I believe both of these firms are well-placed to stage a recovery when the world starts to move on from the pandemic. Both businesses are leaders in their respective fields. This has helped them raise money over the past 12 months to weather the storm. Size also usually comes with larger profit margins.
Of course, there’s no guarantee either company will ever recover. Plenty of businesses have collapsed over the past 12 months. Just because InterContinental and Compass have managed to avoid disaster so far, doesn’t mean that they will continue to do so.
They also face risks from technology upstarts, such as AirBnB and, in the case of Compass, smaller local competitors. These challenges may make it more difficult for the corporations to claw back pandemic losses.
InterContinental and Compass may also face other challenges, such as higher wage bills, additional taxes and more regulation. However, I’m comfortable with the level of risk here. It’s clear to me that these businesses may never return to their former glory.
That being said, as ways to play the economic recovery, I think they may be good investments. Their strong brands should help them attract customers and stand out in a crowded field. They’re on my watchlist.
