2 ideas for a Stocks and Shares ISA from a top UK investor

Stephen Wright takes a look at some ideas from Charlie Huggins, manager of the Quality Shares Portfolio at Wealth Club, for the best UK shares to buy.

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When Charlie Huggins talks about UK shares, I pin my ears back and listen. A lot of what the Wealth Club portfolio manager says resonates with me.

The Quality Shares Portfolio Huggins manages is characterised by an unrelenting focus on truly exceptional businesses. And two of its holdings stand out as potential buys.

RELX

RELX (LSE:REL) is a data and analytics company that looks set to benefit from the rise of artificial intelligence (AI). And a price-to-earnings (P/E) ratio of 35 shows investors are optimistic about the stock.

As Huggins points out, the company’s competitive position makes it difficult to displace. Whether it’s lawyers analysing cases or insurers pricing risks, RELX’s data is indispensable. 

The biggest risk is therefore regulation rather than competition. With AI still in its early stages, it remains to be seen how data usage will be restricted, especially in terms of privacy.

That’s something for investors to keep in mind. But in the meantime, RELX is growing its revenues and investing heavily to improve its competitive advantage over the long term.

Diploma

Industrial distributor Diploma (LSE:DPLM) is another stock Huggins speaks positively about. And it’s easy to see why – the company’s differentiated business model is powerful.

Diploma is an industrial distributor that combines the speed advantages of scale with the technical support of a smaller operation. This is a valuable combination for its customers.

At a P/E ratio of 40, future growth is non-negotiable. And the strategy of doing this through acquisitions is inherently risky as it brings in the possibility of overpaying. 

A market-cap of £5bn means there should be plenty of opportunities to acquire other businesses though. So while the risk is there, I think an optimistic outlook is justifiable. 

Stocks and Shares ISA

For UK investors, a Stocks and Shares ISA is a great way of buying UK shares like RELX and Diploma. With growth stocks, Capital Gains Tax (CGT) can be a big issue.

As a basic rate taxpayer, any profits I make above the CGT threshold by selling shares are taxed at 10%. And the threshold is set to come down this year, from £6,000 to £3,000.

This means if I sold an investment in Diploma shares that was up by £5,000, I’d lose 4% of my return by paying £200 in tax. And if I was up by £10,000, I’d lose 7% to a £700 tax bill.

Buying shares in an ISA however, makes things different. Gains in an ISA are exempt from CGT, so I don’t have to worry about losing part of my return by having to pay tax on it. 

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.

Quality

In my view, using a Stocks and Shares ISA is a key part of maximising my investment returns. But so too is buying the right stocks

The two UK shares Charlie Huggins identifies have some really impressive characteristics. And I agree they could turn out to be great investments over the long term. 

Both are on the list of stocks I’m considering buying. The new ISA season is almost here and I’m excited to get started.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended RELX. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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