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Bed & ISA: shelter existing shares from tax

Rob Morgan
A Bed & ISA involves selling holdings and then buying them back simultaneously within the ISA wrapper (Source: Charles Stanley)

Investing in an ISA is a great way of building up investments tax efficiently. But did you know there is a straightforward means of making Stocks & Shares ISA subscriptions without investing any new money? Simply by using existing shares held outside an ISA in a process known as a “Bed & ISA” you can use some or all of your allowance.

Invest tax-efficiently and use your capital gains allowance

A Bed & ISA involves selling holdings and then buying them back simultaneously within the ISA wrapper. The sale crystallises any capital gain or loss made, so selling or partially selling an existing investment could help with tax planning by using some of your capital gains allowance while keeping your holding.

You can make gains of up to £11,300 this 2017/18 tax year free of Capital Gains Tax (CGT), but should this allowance be exceeded CGT would become payable. If you generate a loss on a sale, and you declare this on your tax return, this could be carried forward to offset against capital gains in future years. There is an explanation of CGT and reporting capital gains or losses to HMRC here.

Once inside an ISA, though, any future gains are not subject to CGT and there is no further tax to pay on any income. Remember, tax rules and the tax treatment of investments can change over time, tax benefits will depend on your individual circumstances and you may not get back what you originally invested.

Tidy up your portfolio

As well as harvesting capital gains while maintaining existing investments, a Bed & ISA can be used to tidy up small or non-tax-efficient parts of your portfolio or make more of neglected holdings. It could also reduce the work required to complete your tax return.

This tax year’s (2017/18) ISA allowance is £20,000, so if you are not going to use this in full with new money then you could consider a ‘Bed & ISA’ for any existing holdings in a Charles Stanley Direct Investment Account. Remember, if your ISA allowance isn’t used for a particular year it is lost forever.

Our straightforward platform fees are aggregated across all your accounts meaning the ongoing costs are the same for holding shares inside or outside a Charles Stanley Direct ISA.

How to Bed & ISA

A Bed & ISA is easy to arrange. With Charles Stanley Direct you can sell shares in your Investment Account and use the proceeds to top up your ISA, buying the same shares back straight away and paying just £11.50 for each purchase and £11.50 for each sale. Stamp duty of 0.5 per cent (not applicable to AIM shares) is payable as well as the Panel on Takeover and Mergers Levy of £1 on any deal over £10,000. These charges together with the difference between the buying and selling prices, known as the bid-offer spread, means fewer shares are repurchased in the ISA than sold.

Charles Stanley Direct account holders with shares they wish to Bed and ISA can place instructions via a secure message or call us on 0131 550 1234 during UK market hours and we will do the rest. To do this for this tax year you need to place instructions no later than 4.00 pm on Thursday 29th March 2018 – but ideally earlier to ensure it can be completed in time – and you must have a valid ISA application in place.

This website is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. This article is solely for information purposes and should not be construed as investment or financial advice. Tax rules can change and the benefit of tax shelters depends on circumstances. Investors should be aware that past performance is not a reliable indicator of future results and that the price of shares and other investments, and the income derived from them, may fall as well as rise and the amount realised may be less than the original sum invested. If you are unsure of the suitability of your investment please seek professional advice.

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