Bed & ISA: It’s a simple trick to help savers shield their investments from tax before tax year end

Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners, the online investment service, says:  

“A raft of tax changes in recent years has tightened the squeeze on savers and investors, particularly for those holding assets – such as shares or funds - outside tax-efficient wrappers, leaving many investors feeling increasingly concerned about the tax treatment of their savings and investments.  

“This is why shifting investments into a tax-protected ISA or pension is becoming an increasingly attractive option for many. Thankfully, there is a nifty little trick investors can take advantage of to protect their investments that does not incur a tax charge.  

“Known as Bed & ISA - or Bed & Pension for pension savers - the process allows savers to sell investments held in a taxable environment and repurchase them within an Individual Savings Account. This move effectively shields those assets from future tax on income and gains – but care needs to be taken not to breach your annual CGT exemption of £3,000 in the process. Migrating investments into ISAs makes a saver’s investment portfolio more tax efficient over the short and long term - a benefit that will become increasingly valuable as allowances remain frozen.  

“You need to act quickly, however. With less than four weeks until the 2025-26 financial year ends at midnight on April 5,  investors that hold assets in a trading account, or even have share certificates sitting in a drawer at home, must act fast to make the most of their tax-free allowances – particularly if they want to take advantage of a Bed & ISA transaction. 

“The limited time window to complete these transactions is even more pressing this year as Tax Year End falls over the long Easter weekend. Brokers and platforms set early Bed & ISA and Bed & Pension deadlines to ensure sales and transfers are processed in time, but there is an extra Bank Holiday to navigate around for Good Friday on April 3. 

“To complete a Bed & ISA process in full, investors typically need up to 10 days, or even up to four weeks, or longer, for those who first need to migrate share certificates on to a nominee account to sell them. Remember, the urgency not only relates to selling the assets and realising the CGT gain but also to utilising your tax-free allowances before the financial year ends. Once the money is loaded into your ISA or pension, however, you can then take your time to make your investment selection.” 

While selling investments held outside a tax wrapper and buying new assets can be done relatively quickly, those that want to crystallise a gain and then repurchase the same shares and funds outside of an ISA must adhere to UK rules that require investors to wait 30 days* to buy back the same investment.  

The risk here is that the assets shoot up in price before a repurchase can be completed. Of course, they can also drop in price though neither move makes investments more tax efficient for the future if they remain in a taxable account. 

Bed & ISA or Bed & Pension, however, is an exception to that 30-day rule as the money is being moved into a tax-protected Stocks & Shares ISA or a private pension, such as a Self-Invested Personal Pension (SIPP), where it will grow tax free. Because the transaction can happen quickly for a digital transfer, the investor should not miss out on major market moves for too long. For those holding share certificates, however, the transaction will take longer.  

Many Britons are simply unaware of the tax benefits that come from protecting investments by holding them in a tax wrapper, such as a Stocks & Shares ISA or a private pension.  Personal tax allowances have been shrinking in recent years, but ISAs and pensions can shield savers' money from any future tax on interest, dividends and capital gains, so they are a no-brainer for savers that want to hang onto as much of their wealth as possible.

Savers have been hit with a barrage of tax changes in recent years. Whether it’s the Autumn Budget 2025 decision to extend the income tax threshold freeze to 2031, the 2-percentage point increase in dividend income tax set to come into effect on April 6, or similar hikes to savings and rental income tax coming online in April 2027, the tax burden on savers and investors is creeping ever higher.

There's also the already implemented rises to Capital Gains Tax (CGT) rates introduced in October 2024 to contend with (which rose from 10% to 18% for basic-rate taxpayers, and from 20% to 24% for higher and additional rate taxpayers), along with the cuts to the CGT annual exemption** and the Dividend Allowance*** under the former Conservative Government. Plus, the static Personal Savings Allowance**** limits how much savers can hold in cash before they are liable for tax on the interest they earn.

Taking advantage of your annual £20,000 ISA allowance before tax year end by using Bed & ISA to migrate investments into a tax-protected account ensures you don’t miss out on this valuable allowance before it resets on April 6. 

It can also make sense to use up your annual £3,000 CGT exemption, as this allowance also does not roll over to the next year. Sometimes referred to as ‘the forgotten allowance’, the annual CGT exemption often remains unutilised, even by the most experienced investors, who let their exemption expire each tax year end. 

By taking advantage of your ISA allowance every financial year, and by using the Bed & ISA process to complete the transaction – you can crystallise gains gradually, rather than all at once, again enhancing the tax-efficiency of your portfolio. This is why anyone with substantial capital gains on their existing investments, such as shares and funds, held outside a tax wrapper who has some of this tax year’s ISA allowance left would be wise to carry out a Bed & ISA transaction – or Bed & Pension for those who want to top up their pension instead – before the financial year ends. Provided the investor does not breach this tax year’s CGT exemption of £3,000 during the process, the transfer won’t incur a tax charge.

Married couples and civil partners can also take advantage of ‘interspousal transfers’ and switch assets between each other without triggering a tax charge. This means they can make use of two sets of allowances as part of their Bed & ISA or Bed & Pension strategy, where the shares of funds were originally held in one of their names. 

The process involves shifting some of the investments to be sold into a spouse’s name before selling, to make use of both sets of CGT exemptions. This can be particularly advantageous if one partner pays a lower rate of income tax, as there is also the potential for them to pay a lower rate of CGT if they exceed their £3,000 allowance. Couples can also make use of two sets of ISA or pension allowances – offering even more scope for a couple to ensure their investments are as tax efficient as possible.

Step one: Those with no ISA savings at all should open a Stocks and Shares ISA, while others can use their existing ISA account.  

Remember, if you hold shares in certificate form, they must first be transferred to a General Investment Account with your chosen ISA provider before they can be sold and the gain crystallised. This process can take up to four weeks, or longer, so time is critical for this transaction. 
   
Step two: Check how much of your tax-free allowance you have left. Those who already have a Stocks & Shares ISA in place – or another type of ISA with a different provider - must calculate how much of their £20,000 allowance is remaining.  

Step three: Sell your existing investments held in an investment account up to the value you want to move into your ISA, ideally taking care not to exceed your current CGT exemption limit of £3,000 in the process.  Bear in mind that it can take a little while for the sale of your investments to clear, and the cash becomes available to reinvest.  

While you may pay CGT on any profits above your annual allowance, moving the money into an ISA means you won’t have to in the future. 

Step four: Move the money and reinvest, but not straightaway if you want more time   

For those moving investments from a trading account to an ISA with the same provider, your provider may charge separate trading fees for selling and buying shares. Purchases of UK-listed shares (other than those listed on AIM) will incur stamp duty of 0.5% so factor those costs in. There will almost always be a buy/sell spread between the sale and purchase price, so you could end up with slightly fewer shares in your ISA than you held previously.      

If you are moving to another provider, wait for the funds to appear in your investment account as cash, then make the transfer to the ISA you hold with them. Again, there is the chance of more price movement between trades in this instance.   

Once the cash is added to the ISA, you can then buy back the same investments – effectively ending the Bed & ISA journey. However, savers can also hold the money in cash in their Stocks & Shares ISA, though rules on cash holdings are expected to change from April 2027, or invest in a fresh collection of assets. Some platforms provide interest payments on cash balances, so the money might not be sitting idle. At Bestinvest, cash attracts an interest rate of 2.98%, which is set by our custodian SEI. 

For those who want to direct investments into a private pension, such as a Self-Invested Personal Pension (SIPP), a similar process known as a ‘Bed & Pension’ transaction applies – but again, the countdown is on until tax year end, so they must move fast. 

Pension saving can be particularly lucrative for those who don’t need to touch their money until they retire because contributions attract tax relief at the individual’s marginal income tax rate. This allows higher and additional-rate taxpayers to claim an extra 20% and 25% in tax relief respectively – on top of the 20% tax relief awarded to basic rate taxpayers. Plus, any money invested not only benefits from compounding over the long term but also grows free of any income and capital gains tax.  

This is where Bed & Pension can be very useful for those with savings held outside a tax wrapper. Employees can currently contribute up to 100% of relevant UK earnings, subject to the £60,000 Annual Allowance, into their workplace or private pension, a limit that encompasses all contributions across all pension arrangements, tax relief and employer contributions – though the very highest earners are subject to a tapered allowance. 

Topping up a pension before the Budget could be a wise move for some, as retirement savings can nearly always do with a boost. It is important to remember, however, that once the money is added to your pension, it cannot be accessed by the saver until they are 55, or 57 from 2028.  Those with sizeable sums they can use for a Bed & Pension transaction can also benefit from carry forward rules, where they mop up any unused annual allowance from the previous three tax years once they have maximised their current allowance for this tax year.  

*30-day rule: This regulation introduced in the late 1990s to prevent investors from ‘Bed and Breakfasting’ their assets, where they sold investments at the end of the tax year to use up their CGT allowance and then brought them back straight after the start of the new tax year.    

**The annual CGT exemption is currently just £3,000 - less than a quarter of the £12,300 available in the 2022-23 tax year.  

***The annual tax-free dividend now sits at £500 - just a quarter of the £2,000 allowance investors could tap into in 2022-23 and a brutal 90% reduction from the £5,000 allowance available in 2017-18.   

****The Personal Savings Allowance enables basic rate taxpayers to earn the first £1,000 in cash interest free of tax. Those paying the higher 40% income tax rate receive a £500 allowance while additional rate taxpayers subject to 45% income tax receive no concession at all.