The Stocks and Shares ISA limit will be reset on 6 April 2021. For UK investors that means another £20,000 of tax-free investing room. So I’ve got my eye on two top UK shares for my best possible chance at tax-free gains in 2021.
The brilliant thing about investing in a Stocks and Shares ISA is that all of my capital gains and dividends are free from tax. If I was to buy these shares outside of a Stocks and Shares ISA, I could be forced to pay tax when I come to sell. There is a tax-free allowance of £12,300 for capital gains. But if my investments are above this limit, then I’d have to pay tax.
So to my two top UK shares for April 2021.
Open Orphan
Open Orphan (LSE:ORPH) is a popular healthcare stock: not a biotech but a pharmaceutical services business. That means it doesn’t engage in the risky and costly R&D of drug development. Instead it provides all the background data management and clinical trial services for vaccine and antiviral giants worldwide. Its clients include the likes of Pfizer and Johnson & Johnson.
It is most famous for helping to run the world’s first Covid-19 human challenge trials, winning a £46m UK government contract in October 2020. It also plans to spin off at least four major assets into separate companies. These include selling its novel disease data platform Disease in Motion to wearables giants like Google and Fitbit. Because I already own ORPH, I’ll get shares in each of these new companies in my Stocks and Shares ISA when that happens.
Because it is listed on AIM, it’s a relatively riskier buy than a company on the FTSE 250 or FTSE 100. Companies on this market have less stringent financial reporting requirements than on the higher tier.
Executive Chair Cathal Friel recently put a $1bn (£720m) valuation target on Open Orphan. That would give the business a share price of around £1.10, 266% higher than today’s 30p price.
Fonix Mobile
The next share I’d like to buy for my Stocks and Shares ISA in April is Fonix Mobile (LSE:FNX). This £160m market cap business focuses on mobile payments and mobile messaging. It has some very big blue-chip names as clients, including ITV, Channel 5, and Bauer Media.
It’s a relatively recent float on AIM, which does present risks. Companies only a few months from their IPO date can rise quickly on buzz and hype alone.
Digging back through Fonix Mobile’s financial statements before it went public, I can see that the company had already produced tens of millions in revenue. Profit before tax was up 49% in 2017 and 83% in 2018. And in its most recent full year to June 2020, revenues were up 29% to £40m with profits 53% higher at £7.1m. I can see that it produced a 260% return on equity and a 286% return on capital. So I know that Fonix Mobile is using its cash extremely well to grow.
In its half-year report to 31 December 2020 CEO Rob Weisz noted that Fonix would also pay its first-ever dividend. It’s not huge, at 1.7p per share. But given the company’s stonking growth? I can see Fonix Mobile chucking off cash for shareholders for years to come.
