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How I’d invest £3,000 in UK shares in a Stocks and Shares ISA today

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The ISA season is upon us, and I’m hunting around for UK shares. In an ideal world, I would have £20,000 at my disposal, so I could make maximum use of this year’s Stocks and Shares ISA allowance.

Sadly, I don’t. Not even close. However, investing £3,000 or less before 5 April would take me another step closer to a comfortable retirement. I aim to position myself for the next stock market rally by spreading my money between a number of top UK shares.

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The UK stock market has underperformed for several years, and Brexit is not the only reason. Sadly, we have no tech giants to match Apple, Amazon and Tesla. Information technology makes up just 1.29% of the FTSE 100. By contrast, financial stocks make up 18.44%, but did badly last year as the pandemic stifled economic activity.

I’m backing these 3 UK shares to recover

Energy stocks compose 8.76% of the index, but again, the oil majors have underperformed as demand fell in the pandemic and investors looked beyond fossil fuels.

These two sectors may fare better in 2021, as the UK appears to have got its act together on the pandemic. Our successful vaccination campaign should inject new life into the economy, sooner rather than later. The rise in the pound is a sign that international investors are taking notice. So which shares would I buy with my £3,000?

UK shares BP and Royal Dutch Shell clearly have a challenge surviving the green energy transition, but with the oil price hitting $60 even before the world opens up, the cash should start flowing soon. BP would be my pick of the two, given its thumping 6.9% yield. That should compensate for what could be a sluggish BP share price, as management negotiates the tricky shift into renewables.

The Lloyds share price is up 44% in six months, as investors buy into a banking recovery, but is still down 50% over five years. The bank looks cheap today at 38p, and with the dividend set to return, I would buy it for long-term income. The recent 72% slump in annual profits suggests the recovery will be uneven, but I am prepared to be patient.

I’m using my Stocks and Shares ISA to save tax

The UK housing market is holding up, primarily because it is underpinned by government largesse. This looks set to continue, with Chancellor Rishi Sunak set to extend the stamp duty holiday (if only by three months) and lining up 95% LTV mortgages for first-time buyers. Housebuilders are among the most tempting UK shares right now and I would buy the biggest, Barratt Developments. It recently posted a 1.7% rise in pre-tax profit to £430.2m, with record first-half completions, and is restoring its dividend.

The Barratt share price has outperformed other housebuilders, rising by a quarter in the last six months, which means rivals may have more catch-up potential. However, trading at 10.1 times forecast earnings, it isn’t expensive.

I’d spread my £3,000 between these three UK shares, to generate long-term income and growth.

This one also tempts me.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. 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.