The Stocks and Shares ISA offers a unique advantage to me as a passive income investor. My capital gains and dividends are tax-free if I invest through this ISA. By comparison, in a regular account, dividends are non-taxable only up to £2,000. After this, dividends are taxed according to the income tax band that applies to me.
Stocks and Shares ISA deadline
The Stocks and Shares ISA allows for an investment of £20,000 in one tax year. The new tax year starts from 6 April onwards. So, I have up to 5 April to use up this allowance. The good news is that there are plenty of quality FTSE 100 stocks available to invest in right now.
FTSE 100 property stocks look attractive
Property stocks are some of the FTSE 100 names with the highest dividend yields. Most of them have dividend yields higher than that for the FTSE 100 index’s 3.5% average. And their share prices have corrected a fair bit in the past few months as the government’s pandemic-driven boost to the sector was withdrawn.
Still, their prospects look good to me. Their own projections are encouraging. And the economy has seen a recovery to pre-pandemic levels as well. If the UK economy continues to recover, I reckon that these dividend stocks could make great additions to my investment portfolio.
Of course, there is always the chance that the economy might derail again. I have been watching inflation numbers quite nervously in the past few months. Recently, the Bank of England painted a pretty cautious picture for price increases in its monetary policy statement as well. If, however, inflation is contained soon enough, I am pretty optimistic about my passive returns from them.
Oil stocks’ dividend prospects are good
I also like FTSE 100 oil stocks. Surprisingly, oil biggies are still trading at below pre-pandemic levels. Going by their strong results and even stronger prospects, what with the high price of oil these days, I expect their prices to rise. But before they do, I want to increase my positions in them. They pay above-average dividends, and if they keep benefiting from the oil price windfall, I think their dividends will rise substantially as well.
Like in the case of property stocks, however, their prospects could also be marred by high inflation. While they are on the right side of inflation right now, over time, elevated prices can damage demand in the economy. There could also be windfall taxes on their profits. But that remains to be seen.
Utilities are safe bets
I also like utilities. They might not always be the best growth stocks, but if I am worrying about another economic slowdown, these are good stocks to hold. Not only do most of them offer dividend yields in excess of that for the FTSE 100 as a whole, they are also unlikely to dip much if things go south for the stock markets. I would buy select ones now within my Stocks and Shares ISA.
