UK shares to buy for a Stocks and Shares ISA

When I’m looking for UK shares to buy for my Stocks and Shares ISA, I like to focus on companies that have both income and growth potential.

Stocks and Shares ISAs have unique tax benefits. Investors can save up to £20,000 every tax year in one of these wrappers. 

Investments held in an ISA don’t attract income or capital gains tax. Investors don’t even have to declare the assets on their tax returns. This makes them particularly attractive for higher rate taxpayers and investors focused on income. 

I like to concentrate on income and growth stocks in my ISA for this reason. Growth companies tend to retain the majority of their profits to reinvest in the business. So growth stocks don’t tend to be income investments.

On the other hand, corporations that can pay out a large chunk of profits may not necessarily be great growth investments, as this could signify they’re not investing for growth. 

I want to focus on companies that offer the best of both worlds. UK shares that provide both a steady dividend yield and have cash left over to invest for growth. 

UK shares to buy

Some of the best growth investments can be found in the small-cap section of the market. These businesses might not be suitable for all investors. They can be incredibly volatile, and small-cap growth stocks can be even more challenging to own. 

Still, I’m comfortable owning these companies in my portfolio, despite the risks of doing so.

One such firm I’d buy for my Stocks and Shares ISA is the motor retail and after-sales company Lookers (LSE: LOOK). The stock’s currently trading at a forward price-to-earnings (P/E) ratio of just 5.9. The stock doesn’t currently offer a dividend, but it did before the pandemic.

After two years of losses, profits are expected to rebound this year to similar levels as reported for 2017. That year, the company paid a dividend of 3.9p per share.

I don’t think it’s unreasonable to say that, as the company’s profits recover, management could reinstate the dividend at or near this level. Doing so would give the stock a dividend yield of 5.8%. Of course, there’s no guarantee this will happen. 

Challenges the company could face, which would slow its return to growth including rising costs, and competition in the used-car sector. 

Stocks and Shares ISA investment

Another company I’d buy for my portfolio of UK shares is the financial services group Numis (LSE: NUM). 

This organisation, which specialises in institutional stockbroking and advisory services, is currently benefiting from a surge in capital market activity. City analysts believe the group’s earnings per share will increase by around 56% in its current financial year. That’s a significant jump. 

Over the past six years, the company has gone from strength to strength and has used profits to drive growth into new markets and take on its larger competitors. Revenues and profits have more than doubled since 2015. 

As long as the company continues doing what it does best, I think it’ll continue on this trajectory. As well as its growth potential, the stock also supports a dividend yield of 3.4%. I believe it’s likely this distribution will increase as earnings expand. 

Those are the reasons why I’d buy the company for my Stocks and Shares ISA. However, as is the case with all small businesses, it does face some significant changes. These include competition in the financial services sector and regulatory costs. These could prove to be a drag on profit margins and the group’s growth. 

Tech sector darling 

In the technology sector, I’d buy IT infrastructure solutions provider Softcat (LSE: SCT) for my portfolio of UK shares. 

I like this company because I think as the world becomes more digitally enabled, demand for IT solutions and infrastructure maintenance will only increase. As one of the predominant groups in the UK in this market, the £4.4bn enterprise is one of the best stocks to own to build exposure to this theme, in my opinion. 

And it has a fantastic growth track record. Over the past six years, net profit has grown at a compound annual rate of 19%. Management’s hiked the group’s dividend yield in line with its profit growth. The payout has more than doubled since 2019. 

While the stock’s dividend yield of just 1.5% might look disappointing, I’m encouraged by its growth potential over the next few years. 

That said, Softcat’s growth shouldn’t be taken for granted. I’ll be keeping an eye on the group’s costs, which could increase and reduce profit margins. Competition in the sector may also prove to be a headwind for growth. 

UK shares for the recovery

I think one of the best ways to build exposure to the UK economic recovery is to acquire recruitment companies. With that in mind, I’d buy Sthree, Pagegroup and Robert Walters for my Stocks and Shares ISA. 

I would purchase all three because I’m well aware this sector can be incredibly volatile. Recruitment tends to be the first sector that feels the pain in a downturn, but it can be the first to see the green shoots of recovery. 

As such, these companies may not be suitable for all investors. However, I’m comfortable with the risks involved. 

Recruitment stocks also tend to be highly cash generative. Therefore, when times are good, they can return significant amounts of cash to investors. These returns might not come into play until next year, considering the state of the global labour market, but investors could be set for substantial rewards when they return. 

So despite their risks, I’d acquire these recruitment stocks for my portfolio of UK shares in my Stocks and Shares ISA as growth and income plays.