It’s time for a Bed & Isa before a capital gains tax raid hits

Tax hikes are looming: Why you should consider a Bed & Isa now to cash in capital gains before the allowance is slashed on 6 April

Investors who want to protect an existing portfolio from tax may be able to do so using a process known as Bed and Isa. But experts warn they will need to get their skates on.

Doing a Bed and Isa transfer now before the new tax year could save some investors with sizeable portfolios hundreds of pounds.

Not only does this process get your investments into the tax-free wrapper of a stocks and shares Isa, but it also means you can take advantage of this year’s capital gains tax allowance before it is slashed on 6 April.

Transfer time? Doing a Bed and Isa transfer now before the new tax year could save some investors hundreds of pounds

What’s a Bed & Isa?

The esoterically-named Bed and Isa process involves transferring investments held outside a tax wrapper into an Isa. That means that any future investment growth is sheltered from tax.

Most investment platforms will carry this out on your behalf so you don’t have to sell all of your holdings yourself one by one and then buy them all again.

Bed and Isa transfers have soared in popularity in recent months, ever since cuts to the Capital Gains Tax (CGT) and dividend tax allowances were announced by Chancellor Jeremy Hunt in the Autumn Statement last November.

The CGT allowance will be slashed from £12,600 to £6,000 from April 6, and then again to £3,000 in April 2024. 

The dividend tax allowance falls from £2,000 to £1,000 and then to £500 in April 2024.

Why it might make sense to Bed & Isa now

If you move your portfolio through a Bed and Isa transfer, you may have to pay capital gains tax on any gains. 

But, once safely in your Isa, any future profits and dividends are tax free. 

Importantly, by transferring before the new tax year, you will benefit from the higher capital gains tax allowance of £12,300. This could make a significant difference to those with large profits or portfolios built up outside of a stocks and shares Isa.

Bed and Isa transfers contribute towards your Isa allowance. But with most people unable to save or invest the full £20,000 annual Isa allowance in fresh money, a Bed and Isa can help use up a portion that would otherwise go unused.

How a Bed & Isa could pay off

The annual capital gains tax-free allowance will be cut from £12,300 to £6,000 when the new tax year starts on 6 April 2023. It is then due to fall even further to just £3,000 from the 2024 tax year.

Currently, a higher rate taxpayer making a £15,000 capital gain would pay tax on just £2,700 of that profit, landing them with a £486 bill.

But if they were to make the same gain after 6 April 2023, they would be liable for tax on £9,000 of their profits, meaning a tax bill more than three times bigger at £1,620.

The dividend tax-free allowance is due to be cut too, falling from £2,000 to £1,000 from 6 April. It will then be halved again to just £500 from the 2024 tax year.

A higher rate taxpayer investor getting £2,000 of dividends each year would currently pay no tax on their income from investments.

From 6 April, they would face tax on the £1,000 of their dividends above the new £1,000 tax-free allowance and lose £337.50 to tax.

Reinvested dividends compounded over the years are one of the major drivers of stock market total returns, so protecting them in an Isa means gains can mount up with tax eating into them.

Don’t leave it to the last minute 

If you do plan to do a Bed and Isa then it is important to leave yourself enough time to sell and buy back investments.

This is even more vital as the end of the tax year looms, as missing the deadline could deliver a bigger capital gains tax bill.

Jason Hollands, managing director of investment platform Bestinvest, says: ‘Do not leave it too late. 

‘The process takes a few days as the sale of your existing investments will take time to clear before the cash is available.’

Compare the best DIY investing platforms and stocks & shares Isa

Investing online is simple, cheap and can be done from your computer, tablet or phone at a time and place that suits you.

When it comes to choosing a DIY investing platform, stocks & shares Isa or a general investing account, the range of options might seem overwhelming. 

Every provider has a slightly different offering, charging more or less for trading or holding shares and giving access to a different range of stocks, funds and investment trusts. 

When weighing up the right one for you, it’s important to to look at the service that it offers, along with administration charges and dealing fees, plus any other extra costs.

To help you compare the best investment accounts, we’ve crunched the facts and pulled together a comprehensive guide to choosing the best and cheapest investing account for you. 

We highlight the main players in the table below but would advise doing your own research and considering the points in our full guide linked here.

>> This is Money’s full guide to the best investing platforms and Isas 

Platforms featured below are independently selected by This is Money’s specialist journalists. If you open an account using links which have an asterisk, This is Money will earn an affiliate commission. We do not allow this to affect our editorial independence. 

Admin charge Charges notes Fund dealing Standard share, trust, ETF dealing Regular investing Dividend reinvestment
AJ Bell*  0.25%  Max £3.50 per month for shares, trusts, ETFs.  £1.50 £9.95 £1.50 £1.50 per deal  More details
Bestinvest* 0.40% (0.2% for ready made portfolios) Account fee cut to 0.2% for ready made investments Free £4.95 Free for funds  Free for income funds More details
Charles Stanley Direct 0.35%  No platform fee on shares if a trade in that month and annual max of £240 Free £11.50 n/a n/a More details
Fidelity* 0.35% on funds £45 fee up to £7,500. Max £45 per year for shares,  trusts,  ETFs Free £10 Free funds £1.50 shares, trusts ETFs £1.50 More details
Hargreaves Lansdown* 0.45% Capped at £45 for shares, trusts, ETFs Free £11.95 £1.50 1% (£1 min, £10 max) More details
Interactive Investor*  £9.99 per month, or £4.99 under £30k holdings,  £12.99 for Sipp £5.99 per month back in free trading credit (does not apply to £4.99 plan) £5.99 £5.99 Free £0.99 More details
iWeb £100 one-off £5 £5 n/a 2%, max £5 More details
Etoro*  Free but no Isa or Sipp  Investment account offers stocks and ETFs. Beware high risk CFDs in trading account Not available  Free  n/a  n/a  More details 
Freetrade* Free for Basic account,  £4.99 per month for Standard with Isa  Freetrade Plus with more investments and Sipp is £9.99/month inc. Isa fee No funds  Free  n/a  n/a  More details 
Vanguard  0.15%   Only Vanguard funds Free  Free only Vanguard ETFs  Free  n/a  More details 
(Source: Jan 2023. Admin % charge may be levied monthly or quarterly