The UK stock market’s home to countless passive income opportunities, while the Stocks and Shares ISA offers a tax-efficient way to hold them. Pair these two, and you have a winning formula for building long-term wealth.
With this in mind, here are three passive income ideas to consider.
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.
Stock
Getting the ball rolling, we have Hollywood Bowl (LSE:BOWL). This is the UK and Canada’s leading 10-pin bowling operator, with 92 centres across both countries.
The FTSE 250 stock has been struggling due to household budget pressures and concern that the summer heatwaves kept families and potential visitors outdoors. There’s a chance these issues could be reflected in the firm’s upcoming FY26 results (52 weeks to 30 September).
On the other hand, it’s also possible that these risks are priced in already. Because after slumping 20% since May, the stock’s forward price-to-earnings (P/E) ratio is just 10. That looks solid value to me.
It also leaves the forward-looking dividend yield at 5.7%. This payout’s well supported by forecast earnings, suggesting the dividend will be met (though that’s not set in stone, of course).
Over time, I think the stock will bounce back. Hollywood Bowl offers family fun at affordable prices, generates solid returns on capital, and is aiming for at least 130 centres by 2035.
As I see it, investors are being paid a decent 5.7% dividend to wait for a potential recovery.
Investment trust
If a single stock exposed to the fragile UK economy seems too risky, perhaps City of London Investment Trust (LSE:CTY) is worth a look. It recently became the first investment trust to achieve 60 consecutive years of annual dividend growth!
The share price is also up around 50% in five years, so investors have enjoyed both growth and income, a winning combo.
City of London has 76 holdings, including top-notch stocks like HSBC, BAE Systems, Shell and Tesco. It’s also able to invest up to 20% of the portfolio in overseas companies.
Another thing I like here is that Job Curtis has been managing the portfolio for 35 years. One thing the trust has done over this time is keep some dividends back in reserve during the good times to use when bad times hit (the pandemic, for example). Without thinking long term like this, the dividend would have been cut, Curtis admits.
