If you hold investments such as shares or investment trusts outside a tax-efficient wrapper it might make sense to transfer them into an ISA account because of the looming changes to the dividend allowance and capital gains tax exemption.
The dividend tax allowance was already cut in April 2023 from £2,000 to £1,000 and this April it will be cut in half again from £1,000 to £500. Meanwhile, the capital gains tax allowance is halving from £6,000 to £3,000.
Shifting investments into an ISA protects future gains and dividends from the clutches of tax.
What is Bed & ISA?
An ISA is one of the most tax efficient savings vehicles you can find. The Bed & ISA process involves transferring assets held outside of a tax wrapper into an ISA so any future capital growth or income on these assets is sheltered from tax.
You can buy the same investments back within the ISA wrapper, choose other investments or simply hold the cash within your ISA.
Who might consider a Bed & ISA?
A Bed & ISA strategy is useful in several scenarios. You may have inherited or accumulated investments outside an ISA in earlier years – perhaps you were able to invest more than the annual allowance.
By utilising the Bed & ISA transaction, over the years you will shelter more of your portfolio from tax.
Is Bed & ISA worth it?
While there could be tax implications at the time of the sale, a Bed & ISA transfer could potentially save you a significant amount of money over time. Once your investments have been transferred, you don’t have to declare them on your tax returns.
The amount you move into your ISA can’t exceed your annual allowance of £20,000 (remember to deduct any contributions you’ve already made in the current tax year).
Bed & pension?
A similar process applies to investments moved into a pension, where a ‘Bed & pension’ transfer can be employed. If you do choose to Bed & Pension (rather than Bed & ISA), once the money is added to your pension, you cannot touch it until you are 55, or 57 from 2028.
Getting some help
If you would like to find out more about Bed & ISA/Pension or to make the most of this year’s ISA allowance, please get in touch.
Please remember, this content is provided for information purposes only. Investment involves risk. Past performance is not a guarantee or indication of future results. Investment return and the principal value of an investment may go up or down and may result in the loss of the amount originally invested. All investors should seek professional advice prior to any investment decision, in order to determine the risks associated with the investment and its suitability.
