Bed and ISA strategy explained
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Quick answer: Bed and ISA means selling investments held outside a tax wrapper and rebuying them inside a stocks and shares ISA in the same tax year — you use your ISA allowance to shelter future gains and income.
Many UK investors build portfolios in general investment accounts then move them into ISAs gradually. HMRC treats the sale as a disposal for CGT, so timing and allowances matter. This guide explains the process and costs.
Why do it
Outside ISAs, dividends above £500 and capital gains above £3,000 can create tax bills. Moving assets into an ISA shelters future income and gains from UK tax.
Bed and ISA is useful after a windfall, inheritance or years of buying shares outside wrappers when your allowance has not been fully used. Moving gradually each tax year spreads CGT risk across multiple annual exempt amounts.
CGT considerations
Calculate gain as sale proceeds minus purchase cost and allowable fees. Use losses elsewhere in the same tax year to offset gains before selling.
If you are near the CGT threshold, consider spreading sales across tax years or transferring shares to a spouse first to use both exempt amounts. A genuine gift to a spouse must have no strings attached to qualify for CGT exemption.
Practical steps
Check your platform supports bed and ISA — some call it 'share exchange' or 'internal transfer'. Allow time for settlement, usually two working days.
Rebuy slightly different funds if wash-sale matching rules could affect CGT calculations on identical securities — seek guidance if amounts are large. The 30-day bed and breakfast rule prevents selling and rebuying the same shares for an artificial loss.
Common questions
Can I bed and ISA into a pension instead?
You can sell and contribute cash to a SIPP for pension tax relief, but that uses pension allowances, not ISA allowance — different rules apply.
Does bed and ISA work with shares?
Yes, for quoted shares and many funds. Some illiquid assets may take longer to settle.
What about bed and spouse?
Couples sometimes transfer assets to a lower-rate spouse before selling to reduce CGT — must be a genuine gift with no strings attached.