Bed and ISA transactions soar as tax year deadline approaches

30 March 2023

Bed and ISA transactions have increased significantly since Chancellor Jeremy Hunt unveiled cuts to the Capital Gains Tax and dividend allowances in his Autumn Statement last November.

Data from AJ Bell showed a 387% increase in platform Bed and ISA transactions between November 2022 and February 2023 compared with the same period a year earlier.

The term refers to the process of selling an investment in a dealing account and then purchasing it in an ISA, utilising an investor’s CGT allowance and shielding assets from tax on growth and dividends in the future. It helps to minimise exposure to market movements on the investment, with only one dealing charge applied.

Its popularity comes ahead of changes to the CGT allowance and the dividend allowance from 6 April 2023 as the Government seeks to rebalance the books in the wake of the recent pandemic. The CGT allowance is set to be slashed from £12,300 to £6,000, while the tax-free dividend allowance will be halved from £2,000 to £1,000.

Laura Suter, head of personal finance at AJ Bell, said: “The prospect of even higher tax bills from  next month has prompted investors to stash their cash in ISA accounts ahead of the tax year end. The Chancellor announced his wealth tax raid in November and since then investors have cranked into action, moving their investments into an ISA to protect them from capital gains and dividend taxes.

“The fact that the Chancellor is cutting tax-free allowances for both capital gains and dividend tax at the same time as freezing tax bands means that investors will be clobbered from two sides. They’ll pay more tax on their existing gains and investment income but more investors will also be pushed into a higher tax bracket and so face a higher rate of tax on those investments.”

Suter said investors with any remaining ISA allowance should transfer as much of their investments as possible into the account.

“The Bed and ISA transaction makes this process easy but the clock is ticking. These transactions take time and so the deadline for doing them is always ahead of the tax-year end deadline which itself is only two weeks away. Despite already seeing a huge surge in Bed and ISA transactions, lots of investors leave things down to the wire meaning we’re expecting to see a last minute dash to ISAs in the next week,” Suter added.

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