What is the Bed and ISA strategy for CGT efficiency?

Bed and ISA is a tax planning strategy where you sell investments held in a taxable account (such as a general investment account) and immediately repurchase the same investments inside an ISA (Individual Savings Account). This shelters future growth and income from tax.

How it works:

• Sell shares or funds in your taxable general investment account.
• Transfer the cash into your Stocks and Shares ISA.
• Repurchase the same (or similar) investments inside the ISA.

Once inside the ISA, all future capital gains and dividends are completely tax-free.

Why do this?

With the CGT annual exempt amount now only £3,000 for 2024/25, more investors than ever will face CGT when selling investments. By gradually moving holdings into an ISA, you can:

• Use your £3,000 annual exemption to crystallise gains tax-free.
• Shelter future growth from CGT permanently.
• Protect dividend income from dividend tax.

ISA allowance:

The annual ISA allowance for 2024/25 is £20,000. You can use all of this in a Stocks and Shares ISA if you wish.

Important considerations:

• Timing: The sale and repurchase are two separate transactions. You are out of the market briefly, so there is a small risk of price movement.
• 30-day rule (Bed and Breakfasting): If you sell and rebuy the same shares in the same taxable account within 30 days, the gain or loss is matched against the repurchase, nullifying the tax benefit. However, this rule does not apply when you repurchase inside an ISA, which is what makes the Bed and ISA strategy work.
• Transaction costs: Check for any dealing fees or stamp duty (0.5% on UK shares).

Many investment platforms such as AJ Bell, Hargreaves Lansdown, and Vanguard offer a streamlined Bed and ISA service.