Bed and ISA

A Bed and ISA deal lets you sell an investment in your Dealing account and buy it back in your ISA. Find out more about how it works and the Bed and ISA rules in this article.

What is a Bed and ISA?

A Bed and ISA transaction is a very handy hack if you want to protect more of your investments from tax. It's simply a pair of deals carried out at the same time, where you sell an investment from your Dealing account and immediately buy it back in your Stocks and shares ISA or Lifetime ISA (LISA). This helps you make the most of your annual tax-free ISA allowance and means any future growth and income generated by your investments will be protected from tax.

You can carry out a Bed and ISA across a wide range of investments, such as shares, investments trusts, ETFs and bonds.

How much does a Bed and ISA cost?

In most cases, AJ Bell can repurchase the investment right away, meaning you only pay one dealing charge and, for an international investment, one foreign exchange (FX) charge, rather than separate charges for the sale and repurchase. This also means less exposure to market movements, so the difference between your sale and purchase prices should be smaller.

It's worth bearing in mind that the amount of the investment bought back in your ISA or LISA will be reduced by the costs of the dealing charge and FX charge, where applicable, and any stamp duty on UK shares due. Plus, any difference between the investment’s buying and selling price (also known as the bid-offer spread) should also be factored in.

How does Bed and ISA work?

With AJ Bell, you can arrange your Bed and ISA deal online, at the click of a button. Here’s how it works.

• Log into your AJ Bell account, go to your Dealing account portfolio page and select the Bed and ISA option.
• Choose the investment(s) you’d like to sell from your Dealing account and buy back in your ISA and/or LISA.
• We’ll then have up to 10 working days to place your Bed and ISA deal. The price dealt will be the price at the time of the transaction.
• You’ll be sent two contract notes once your Bed and ISA has been completed.

Just remember, not all investments are eligible for Bed and ISA. Want to know more? Our FAQ gives you all the details about placing your deal.

Yes, you’ll only be able to buy investments in your ISA up to the value of your unused ISA allowance for this year. The current annual ISA allowance is £20,000 and it resets at the beginning of the next tax year.

And don’t forget, if you’re using Bed and ISA to buy back your investment in a Lifetime ISA, you’ll use your annual LISA limit (currently £4,000), which also counts towards your overall £20,000 ISA allowance for the year. With a Lifetime ISA, remember you'll also attract a 25% government bonus.

What about capital gains tax?

Most people choose to carry out a Bed and ISA to protect their investments from tax in the future. But keep in mind that any profits you make on the investments sold in your Dealing account might be subject to capital gains tax, if they’re over your tax-free capital gains allowance for the year.

Once investments are wrapped up safely inside your ISA or LISA, any future profits made are protected from capital gains tax. The same goes for any future dividends and income your ISA investments make too – they’ll be protected from income tax.

Bed and ISA rules

Only investments that are traded on an exchange are eligible for Bed and ISA deals. That includes UK-listed and most internationally-listed shares, investment trusts, ETFs and bonds, but does not include Pacific Rim-listed shares or investment funds (OEICS and unit trusts). And though you’ll only pay one dealing charge per Bed and ISA deal, you’ll still have to pay stamp duty at a rate of 0.5% on the repurchase on most UK-listed shares. You would also need to pay an FX charge on the sale for international shares.

For investment funds and any shares that are listed in Australia, New Zealand, Hong Kong, Japan or Singapore, you'll need to sell the investment(s) and transfer the cash from the sale to your ISA or Lifetime ISA to buy them back again yourself. In this case, you’ll have to pay two dealing charges and, for international investments, FX charges too.

What are the benefits?

• Tax: You’ll take advantage of tax benefits in your ISA, when you don’t have readily available cash to invest and you to have investments held outside your ISA that you want to keep.

• Costs: The two transactions that make up a Bed and ISA count as just one deal, so you’ll only be charged one dealing charge at our standard online rate.

What are the risks?

• Tax: You may need to pay capital gains tax on any profits made from the sale in your Dealing account, depending on your personal tax circumstances.
• Costs: Carrying out a Bed and ISA isn’t cost-free. You’ll have to pay a single dealing charge and an FX charge for international shares and possibly also stamp duty, as well as losing any difference between the market buying and selling price.
• ISA & tax rules: The tax benefits of a Stocks and shares ISA may change in the future, and the tax treatment depends on your personal circumstances.

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