Bed and ISA: Shelter Your Gains From CGT
Have investments in a taxable account that have grown in value? A "Bed and ISA" transaction lets you move them into an ISA, sheltering future growth from Capital Gains Tax forever.
What is Bed and ISA?
Bed and ISA is the process of selling investments held outside an ISA and immediately repurchasing them inside an ISA. You "put the investment to bed" outside and "wake it up" inside your tax shelter.
The mechanics:
- Sell shares/funds in your General Investment Account (GIA)
- Transfer the cash to your Stocks and Shares ISA
- Repurchase the same (or similar) investments inside the ISA
Why Bother?
With the Capital Gains Tax allowance cut to just £3,000 per year, more investors face CGT on their gains. Inside an ISA, all growth is tax-free—dividends and capital gains alike.
The Long-Term Benefit
You Bed and ISA £20,000 of investments with £5,000 unrealised gain.
You pay CGT on £5,000 now (minus your £3,000 allowance): around £200-£400 tax.
Over the next 20 years, those investments grow to £80,000.
If left in the GIA: CGT on £60,000 gain = £12,000-£14,000 tax.
Inside the ISA: £0 tax ever.
When to Use Bed and ISA
- You have unused ISA allowance: You can contribute up to £20,000 per year
- You have gains in a GIA: Even small gains add up over time
- You have gains within your CGT allowance: "Free" transfers up to £3,000 of gain
- You want to simplify: Consolidating in an ISA makes tax easier
Use your spouse: A couple has £40,000 combined ISA allowance and £6,000 combined CGT allowance. Transfer assets to the lower-gaining spouse before Bed and ISA to maximise allowances.
Timing Considerations
Use Your CGT Allowance
If your gains are below £3,000, you can Bed and ISA without any tax. Don't waste this annual allowance—it doesn't carry forward.
Market Exposure Risk
Between selling and repurchasing, you're out of the market. If prices rise, you buy back at a higher price. Many brokers offer "Bed and ISA" as a single transaction to minimise this gap.
Tax Year Planning
Consider spreading across tax years. Realise £3,000 of gains in March, then another £3,000 in April (new tax year) = £6,000 tax-free.
Bed and ISA vs. Bed and Breakfast
The old "Bed and Breakfast" loophole (selling and immediately repurchasing to reset your cost base) was closed in 1998. The 30-day rule means you can't sell and repurchase the same shares within 30 days without the sale being matched to the repurchase for tax purposes.
However, this rule doesn't apply when you repurchase inside an ISA or pension—that's a different tax wrapper, so it's a genuine disposal for CGT purposes.
Watch Out For
- Transaction costs: Selling and buying incurs fees—make sure the tax saving exceeds the costs
- Stamp duty: You'll pay 0.5% stamp duty when repurchasing UK shares inside the ISA
- Different price: You might sell at one price and buy back at a slightly different price
- Loss crystallisation: If you're sitting on losses, you might want to realise them in a GIA to offset other gains before moving to ISA
How Talk Through Wealth Helps
Optimise your Bed and ISA strategy:
- Track unrealised gains across your portfolio
- Calculate the tax cost of crystallising gains now vs. later
- Model the long-term benefit of ISA vs. GIA
- Plan around tax year boundaries
- Factor in transaction costs and stamp duty
Optimise Your Tax Wrappers
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