Bed & ISAs can save you thousands in tax

Don’t pay unnecessary tax on your hard-earned cash by keeping your investments in a normal investing account when you still have a tax-free stocks and shares ISA allowance available. In this guide, we will explain what a Bed and ISA is and how you can use it to reduce the amount of tax you pay.

What is a Bed and ISA?

A Bed and ISA is when investors to move investments held in a GIA into an ISA, helping them benefit from tax-free growth and income. It works by selling shares, funds, bonds, or other investments in a taxable account and buying them again simultaneously in a stocks and shares ISA.

Bed and ISAs let investors maximize their annual ISA allowance and reduce future capital gains tax (CGT) liabilities while keeping the same investments in a tax-efficient wrapper.

Bed and ISA Rules

When using a Bed and ISA, there are key rules to consider:

• The sale and repurchase must happen on the same day, usually through your ISA provider (AJ Bell for instance, can do it for you over the phone)
• The repurchase must be within your annual ISA allowance (£20,000 for the 2024/25 tax year).
• Some brokers will charge for both the buy and the sell but others like Hargreaves Lansdown (who call a Bed & ISA a “Share Exchange”) don’t charge fees for selling your investments, and the transaction is done at the mid-market as opposed to the bid/offer price.
• The sale may trigger a CGT liability if gains exceed the annual allowance (£3,000 in 2024/25).
• You cannot directly transfer shares—investments must be sold and then rebought. You can either do this yourself separately or with a platform like Interactive Investor you can use their Bed & ISA transfer form to do it automatically.

What does Bed and ISA mean?

The term “Bed and ISA” originates from the old “Bed and Breakfasting” strategy, where investors would sell and repurchase assets overnight to reset their CGT position.

However, UK tax rules now prevent this by imposing a 30-day rule on repurchasing the same assets. The Bed and ISA process remains legal because investments are repurchased within an ISA, meaning future gains and income are sheltered from tax, making it an effective tax-planning strategy.

How Do Bed and ISAs Work?

1. Sell Your GIA Investments – The investor sells shares or funds held in a general investment account.
2. Transfer Cash into ISA – The sale proceeds are moved into an ISA.
3. Repurchase Investments – The same or alternative investments are bought within the ISA.
4. Assess CGT Impact – If gains exceed the CGT allowance, tax may be due.
5. Enjoy Tax-Free Growth – Any future gains and income within the ISA are exempt from tax.

Does Bed and ISA Avoid CGT?

A Bed and ISA does not completely avoid CGT, as selling investments outside an ISA can still create a taxable gain if the annual CGT allowance is exceeded. However, once investments are within the ISA, any future growth and income are completely tax-free.

Investors can also use their CGT allowance strategically each year to gradually move assets into an ISA without incurring a significant tax bill. Careful planning and timing can help minimize CGT exposure when using this strategy.