Investors can put away £20,000 into a Stocks and Shares ISA every tax year. However, this is a ‘use it or lose it’ allowance. It does not roll over into the new tax year if I do not make the most out of it in the available 12 months.
That is why I like to put as much money away into this tax-efficient wrapper as soon as possible. I also like to focus on buying particular investments to make the most of the tax advantages available.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Passive income stocks: our picks
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
What’s more, today we’re giving away one of these stock picks, absolutely free!
Indeed, any income or capital gains earned on investments held within one of these products is not liable for additional tax. I do not even have to declare the income on my tax return.
And there are a couple of companies I have been focusing on recently, which I believe could make perfect additions to my tax-efficient portfolio.
Stocks and Shares ISA buys
The construction sector in the UK is currently booming. With government spending on infrastructure projects and housing expected to grow over the next couple of years, I think the trend will continue.
So I would acquire Kier and Balfour Beatty for my Stocks and Shares ISA portfolio. These are some of the largest construction companies in the UK. They have the economies of scale and the competitive advantages required to compete effectively in this industry.
Still, I am also aware that the construction industry is usually the first to feel any effects of an economic downturn. Therefore, they are relatively cyclical and high-risk investments.
Alongside these construction and engineering groups, I would also acquire some homebuilders. One of the largest is Persimmon. Demand for new properties in the UK is surging, and it does not look as if this trend will end any time soon. Large homebuilders will be able to capitalise on this by using their economies of scale to push down costs.
Nevertheless, even after taking these competitive advantages into account, I will be keeping an eye on costs. These could impact profit margins if prices rise too far, too fast.
Mining giant
Finally, I would also acquire the mining group Rio Tinto for my Stocks and Shares ISA. This company has made tremendous progress in recent years, reducing its operating costs and improving its balance sheet.
This is helping the corporation increase shareholder returns. It recently announced one of the most considerable dividends on record. This trend may continue if iron ore prices remain high.
That said, I should say that commodity prices can be incredibly volatile. If prices decline overnight, the company’s profits could evaporate. This is something I will be keeping an eye on as we advance.
