Bed and ISA: Don’t forget to make your bed ahead of tax year-end

09 March 2018

With less than a month until the end of the tax year, attention will begin to focus on topping up one’s tax free wrappers before the limits are re-set on 6 April. There will undoubtedly be the last minute frenzy in the last few days – last year Bestinvest saw its final ISA subscription with only four minutes to go until midnight! This year, the ISA allowance is a thumping £20,000. This sum may seem a rather large amount for many; however one facet of ISA investing which many investors forget about is the ability to fund an ISA with shares or funds held outside ISAs, rather than cash, a process known as  ‘Bed and ISA’.

Jason Hollands, Managing Director of Bestinvest, outlines how investors can go about doing this:

“If you don’t have the cash available to open an ISA but you do hold other shares or funds outside in a taxable environment, then it really may be worth using these to fund an ISA. This is a process known as “Bed and ISA” and involves the existing investment being sold, the proceeds of which are then used to open an ISA and then either the previous investment can be repurchased within the account or used to invest in something new. This is a great way of migrating existing investments into a tax-free wrapper so that future dividends and gains escape the clutches of the tax man.

“This is particularly important with the annual Dividend Tax Allowance, the amount which can be earned in dividends tax free, set to fall from £5,000 to £2,000 from 6 April. Dividend income above the allowance is taxed at 32.5% if the investor is a higher rate tax payer and at 38.1% if they are an additional rate taxpayer.

“A further benefit of moving existing shares and funds into ISAs is that you will no longer have to declare these on your self-assessment tax return meaning a little less hassle when it comes to tracking down paperwork.

“However, one thing to note is that it is important when undertaking a Bed and ISA transaction, to make sure you do not exceed your annual capital gains allowance if at all possible. This tax year an adult can realise gains made of up to £11,300 without incurring capital gains tax. It is worth bearing in mind that married couples and civil partners can easily transfer or part transfer investments between them – an inter-spousal transfer – without cost or tax consequences. This can be used to maximise two capital gains allowances if required as part of a Bed and ISA strategy.

“Anyone contemplating a Bed and ISA should be aware that they cannot leave this until the 5 April tax-year end as the process typically takes seven working days to sell the existing holding and receive the cleared funds to reinvest in the ISA. This may take longer if the investments to be sold are not already on the account with the broker or platform you wish to open an ISA with.

“There may also be a small cost, depending on the investments being sold or purchased. At Bestinvest we levy no fees to sell or buy a fund and the overwhelming majority of the more than 2,000 funds available on Bestinvest have no initial charges. Where UK listed securities are trade, such as individual company shares, investment trusts and Exchange Traded Funds, we levy a small £7:50 dealing fees on each transaction. If the share being purchased is a UK domiciled company there is also 0.5% stamp duty reserve tax to pay on purchases as well.”


Important Information:

The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. This press release does not constitute personal advice. If you are in doubt as to the suitability of an investment please contact one of our advisers.

Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change. Exchange Traded Funds (ETFs) can be high risk and complex and may not be suitable for retail investors. Prospective investors should make sure they understand all the risks involved before investing.

About Tilney

Tilney is a leading investment and financial planning firm that builds on a heritage of more than 150 years. The Tilney Group operates under the Tilney brand for Investment Management and Financial Planning and Bestinvest for execution-only investing. We look after more than £22 billion of assets on our clients’ behalf and pride ourselves on offering the very highest levels of professional client service with transparent, competitive pricing across our entire range of solutions.

We offer a range of services for clients whether they would like to have their investments managed by us, require the support of a highly qualified adviser, prefer to make their own investment decisions or want to take more than one approach. We also have a nationwide team of expert financial planners to help clients with all aspects of financial planning, including retirement planning.

We have won numerous awards including Best Fund Platform and Best SIPP Provider at the 2017 City of London Wealth Management Awards; Investment Award – Cautious category in the Private Asset Management Awards; and Stockbroker of the Year, Execution-only Stockbroker of the Year and Self-select ISA Provider of the Year 2015, as voted by readers of the Financial Times and Investors Chronicle. We are pleased that our greatest source of new business is personal referrals from existing clients.

Headquartered in Mayfair, London, Tilney Group employs over 1,000 staff across our network of offices, giving us full UK coverage, and we combine our award-winning research and expertise to provide a personalised service to clients whatever their investment needs.