Sell a holding, rebuy it inside an ISA. The sale is a disposal — but with a £3,000 annual exemption and a shrinking one at that, doing it in stages is usually cheaper than doing it never.
Investments held outside a tax wrapper generate taxable dividends and taxable gains. The same investments held inside an ISA generate neither. Bed and ISA is simply the process of moving from the first state to the second: sell the holding in a general investment account, subscribe the proceeds to an ISA, and buy it back inside the wrapper.
Most platforms run this as a single instruction, which reduces the time out of the market to minutes and handles the paperwork. What it cannot do is avoid the fact that the sale is a disposal.
The Cost and the Benefit
| Cost now | Benefit afterwards | |
|---|---|---|
| Capital gains | Gain crystallised, taxable above the £3,000 exemption | All future gains sheltered |
| Dividends | — | Dividends no longer taxable |
| Dealing | Two trades and a spread | — |
| Reporting | May need reporting on a return | Nothing to report ever again |
Capital gains above the exemption are charged at 18% or 24% depending on your band. The calculation is therefore a straightforward comparison: a known one-off cost today against an indefinite stream of dividend tax and future capital gains tax avoided.
The annual exemption is use-it-or-lose-it. At £3,000 it does not go far, but it resets every year. Moving holdings across several tax years, keeping each year's gain within the exemption, can transfer a substantial portfolio into ISAs with no capital gains tax at all. That is the version of this most people should be doing.
The 30-Day Rule Does Not Block This
The share matching rules include a 30-day provision designed to stop people selling and immediately rebuying the same shares purely to crystallise a gain or loss. It applies to a repurchase in the same capacity, and a purchase inside an ISA is not that — which is exactly why the manoeuvre works and why it has a name. The rules do matter for calculating the gain on the sale itself, and our guide to share matching rules covers how disposals are matched.
Doing It Properly
- Work out the gain before you sell, not after. You need the base cost, which for a holding built up over years means the pooled cost rather than a single purchase price.
- Size the sale to the exemption where you can. Selling part of a holding to use exactly the available exemption is usually better than selling all of it.
- Check the ISA allowance available. The £20,000 annual subscription limit caps how much can go in, irrespective of the gain.
- Use realised losses. Losses elsewhere offset gains, and unused losses carried forward can absorb a bed and ISA gain entirely — see claiming capital losses.
- Mind the timing. Both the exemption and the ISA allowance run to 5 April, and platforms are busiest in the days before it.
- Consider spouses. Transfers between spouses and civil partners are generally on a no gain no loss basis, so a couple has two exemptions and two ISA allowances.
Where It Is Not Worth It
Bed and ISA has a cost, and it is not always repaid. A holding with a very large embedded gain may produce a tax bill now that takes many years of sheltered dividends to justify. A small holding may not be worth two sets of dealing charges. And someone who expects to become non-resident should think carefully before crystallising gains at all — the timing relative to a residence change can matter more than the wrapper, as our guide to CGT when you leave explains, and an ISA loses much of its point once you live somewhere that does not recognise it.
The Pension Comparison
For a higher or additional rate taxpayer, the alternative use of the same money is a pension contribution, which attracts relief at the marginal rate going in and is taxed on the way out. The two do different jobs — an ISA is accessible and a pension is not — and our guide to how income is structured compares the routes.
Frequently Asked Questions
Does bed and ISA avoid capital gains tax?
Not on the sale itself, which is a disposal and taxable above the £3,000 annual exemption. It avoids all future gains and dividend tax on the holding once it sits inside the ISA.
Does the 30-day rule stop me buying the shares back?
No. The rule targets a repurchase in the same capacity, and buying inside an ISA is not that. It does matter for calculating the gain on the sale itself.
How much can I move at once?
Up to the £20,000 annual ISA subscription limit, and in practice you may want to size the sale so the gain stays within the £3,000 annual exemption, spreading the transfer across tax years.
Is it ever not worth doing?
Yes. A holding with a very large embedded gain can produce a tax bill that takes years of sheltered returns to justify, and small holdings may not repay two sets of dealing costs.
Related Guides
Keep reading with these related guides and calculators:
- Share matching rules — how the gain is calculated
- Claiming capital losses — offsetting the gain
- Personal Savings Allowance — the cash equivalent
- ISAs when you move abroad — before you commit to the wrapper
- How income is structured — ISA versus pension
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