You might think the phrase Bed and ISA sounds a little obscure, and possibly somewhat dubious. However, it simply refers to the process of selling investments that you’re holding outside of a tax wrapper and then buying the same ones back within your ISA.
In short, by moving your existing investments into an ISA, you get to keep more of what you make. It’s always been quite handy, but this move grew in popularity after last year’s Autumn Budget, when the government made changes to the capital gains tax (CGT) rules. And with rumours of further changes to CGT rules in the 2025 Autumn Budget, the Bed and ISA strategy could become even more useful in the months and years ahead. So, what does it mean and how can it help you?
Bed and ISA and CGT
When you sell investments held outside an ISA – such as in a general investment account or standard trading account – you will pay CGT on any profits above your annual allowance. But by migrating the investments to an ISA, you won’t pay CGT on those profits in the future.
As an investor, you can hold funds, shares and investment trusts in a general investment account. But growth on your holdings will be subject to tax. Everyone gets a capital gains allowance, which has been reduced incrementally from £12,300 in the 2022-23 tax year to the present level of just £3,000.
Gains from selling assets are charged at 18% for basic-rate taxpayers, and 24% for higher-rate taxpayers, having been increased with immediate effect from 10% and 18% respectively in the 2024 Autumn Budget. You are only required to pay these rates on the gains that exceed your CGT allowance.
With the government needing to raise more money in the 26 November Autumn Budget, one of the many measures reportedly on the table is the alignment of CGT and income tax rates. This would see CGT rise to 45% for the highest earners, closing the gap between taxes on earned income and those on capital.
How to do it
To make use of your tax-free allowances, you may want to use a Bed and ISA strategy. This involves you selling just enough of the assets in your regular investment account or ‘dealing account’ to use up your tax-free allowances, and then buying those same ones back though in ISA.
For example, you may have had £30,000 to invest in the previous tax year. You put £20,000 into an ISA and £10,000 into a general investment account. Bed and ISA will allow you to transfer the £10,000 in your general investment account into your ISA. The Bed and ISA process, as you can see, is a very efficient way of putting taxable investments into a non-taxed environment.
Many investment platforms now offer a Bed and ISA service (provided you have at least some of your annual ISA allowance left to use), including interactive investor, AJ Bell, Hargreaves Lansdown and Vanguard. Read up on the many other reasons to use investment platforms here, and use our free comparison tools to find the best platform for your needs and circumstances.
But doesn’t Bed and ISA fall foul of the ’30-day rule’?
The ’30-day rule’ prevents you from selling shares and repurchasing them the next day to realise a loss. Under current HMRC rules, selling shares and immediately buying them back again within 30 days doesn’t create a loss for tax purposes. By contrast, selling shares and then purchasing them back into your ISA – via Bed and ISA – does not violate the 30-day rule.
Make use of unused ISA allowances
Bed and ISA is a good way to take advantage of any unused ISA allowance (frozen at £20,000 until 2030). After all, when it comes to that allowance, it’s a case of ‘use it or lose it.’ Once your existing investments are in an ISA, they will be sheltered from tax.
What to watch out for with Bed and ISA?
When carrying out Bed and ISA, you will incur stamp duty on the repurchase, as well as a dealing charge or trading fee. Be aware that Government stamp duty of 0.5% applies to the repurchase of most shares.
In addition, you will lose the difference between the market purchase price and selling price. As a result, you may end up with slightly fewer shares in your ISA than you had in your trading account. (That said, as the two transactions are carried out together, this should help reduce the exposure to price movements.) When selling assets, you need to take care not to crystallise the CGT liability before repurchasing them within an ISA. Once your investments are within an ISA, they will then be sheltered from future CGT.
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