Should you sell investments now? Why a Bed and Isa may be wise
Do you now have to sell part of your investments?
I’m not asking because of the unknown magnitude of a banking crisis, the potential for a recession, or the vagaries of what might happen to the stock market.
Instead, it’s due to something we know will definitely happen in two weeks: Jeremy Hunt’s tax attack on investment profits and dividends.
If you hold investments outside of an Isa – especially if you have a long-term pot on them or have made significant profits – you should consider selling now before the tax-free allowance for higher capital gains runs out.
A tax attack is coming and if you have investments outside an Isa to sell and buy them back within the tax shelter via a Bed and Isa can pay off
On April 6, when the new tax year begins, the annual tax-free capital gains allowance will be reduced from £12,300 to £6,000.
On the same day, the annual tax-free dividend payment will be halved from £2,000 to £1,000.
And there’s more bad news: a year later, the CGT fee drops to just £3,000 and the dividend payment becomes a mere £500.
Announced in the November fall statement, this was one of the Chancellor’s balancing measures following Kwasi Kwarteng’s disastrous mini-budget, and represents the biggest assault on everyday investors we’ve seen in many years.
All small investors who hoped in last week’s budget for a postponement of the spectacular hacking of capital gains tax and dividend tax were disappointed.
But there is a way to protect yourself from the more stingy future for CBT and dividends: get as much as you can into an Isa.
Within the tax-exempt envelope of an Isa share, there is no capital gains tax to pay on profits or dividend tax to pay on payouts. And as a bonus, there’s no need to fill out details of either on a tax return, either.
Therefore, investing in an Isa makes sense and can be much more profitable than keeping your investments out of an Isa, as profits can grow over the years without being eroded by tax.
The easy way to get your existing investments into this tax shelter is through something known as a Bed & Isa where you sell your shares, funds, investment funds etc and then buy them back directly within an Isa.
The IRS is perfectly fine with you doing this and a Bed and Isa is a feature offered by most investment platforms, many of which can do pretty much all the work for you.
Those I’ve spoken to on investment platforms in recent weeks tell me there has been a flurry of requests from Bed and Isa.
That’s not surprising as this is a potentially doubly profitable business this year.
Not only do you benefit from the future tax protection of holding investments in an Isa, but you also use up some of this year’s higher capital gains tax deductions.
As I noted above, this is especially important for those who have built up investment pots over the years outside of an Isa, or who have made significant short-term profits.
They are most at risk of being caught out with lower capital gains tax deductions and of having built up healthy levels of annual dividend income.
Any profit in excess of the annual CGT deduction is taxed at 10 percent for base rate taxpayers and 20 percent for higher rate taxpayers.
Currently, a higher rate taxpayer earning £15,000 in capital gains in a year would pay tax on just £2,700 of that gain, leaving them with a £540 bill.
But if they made the same profit after April 6, 2023, they would be liable to tax on £9,000 of their profits, which equates to a tax bill more than three times as much as £1,800.
By selling your investments, you’re doing something known as crystallizing your profits — which triggers a capital gains tax.
What you can’t do is just sell some investments and then buy them right back outside of an Isa. The tax authorities are wise to this and impose a 30-day rule to stop this.
But selling and buying back investments in an Isa is perfectly legitimate, hence the Bed and Isa system.
If you have investments outside of an Isa and own shares of Isa with the same investment platform, this should be a simple process, but if they are held in different places, you’ll have to do the legwork yourself.
The other benefit of a Bed & Isa is that it helps use up some of this year’s £20,000 Isa allowance, something most of us couldn’t do with new money.
But you do have to put on your skates. The process takes time and there is only two weeks until the end of the tax year. Don’t leave this until the last minute.
Compare the best DIY investment platforms and stocks Isa
Online investing is simple, cheap and can be done from your computer, tablet or phone at a time and place that suits you.
When it comes to choosing a DIY investment platform, stock Isa or a general investment account, the range of options seems overwhelming.
Each provider has a slightly different offering, charging more or less fees for trading or holding stocks and giving access to a different range of stocks, funds, and mutual funds.
When weighing up the right one for you, it’s important to look at the service it offers, along with handling fees and transaction fees, plus any other additional fees.
To help you compare the best investment accounts, we’ve put together the facts and put together a comprehensive guide to choosing the best and cheapest investment account for you.
We highlight the key players in the table below, but we encourage you to do your own research and consider the points in our full guide linked here.
>> This is Money’s full guide to the best investment platforms and ISAs
The platforms below have been independently selected by This is Money’s specialist journalists. If you open an account through links marked with an asterisk, This is Money earns an affiliate commission. We will not allow this to affect our editorial independence.
| Management fees | Loads notes | Fund trading | Default share, trust, ETF trading | Invest regularly | Dividend reinvestment | ||
|---|---|---|---|---|---|---|---|
| AJ call* | 0.25% | Max £3.50 per month for stocks, trusts, ETFs. | £1.50 | £9.95 | £1.50 | € 1.50 each | More detail |
| Bestinvest* | 0.40% (0.2% for pre-built portfolios) | Account fees reduced to 0.2% for turnkey investments | Free | £4.95 | Free for funds | Free for income funds | More detail |
| Charles Stanley directly | 0.35% | No share platform fees on any transaction in that month and an annual cap of £240 | Free | £11.50 | na | na | More detail |
| Fidelity* | 0.35% on funds | £45 fee up to £7,500. Max £45 per annum for stocks, trusts, ETFs | Free | £10 | Free funds £1.50 shares, relies on ETFs | £1.50 | More detail |
| Hargreaves Lansdown* | 0.45% | Capped at £45 for stocks, trusts, ETFs | Free | £11.95 | £1.50 | 1% (£1 min, £10 max) | More detail |
| Interactive investor* | £9.99 per month, or £4.99 under £30,000, £12.99 for Sipp | £5.99 a month back in free trade credit (does not apply to a £4.99 subscription) | £5.99 | £5.99 | Free | £0.99 | More detail |
| iWeb | £100 one-off | £5 | £5 | na | 2%, up to £5 | More detail | |
| Etoro* | Free but no Isa or Sipp | Investment account offers stocks and ETFs. Beware of high risk CFDs on a trading account | Not available | Free | na | na | More detail |
| Free trade* | Free for Basic account, £4.99 per month for Standard with Isa | Freetrade Plus with more investment and Sipp is £9.99/month inc. Is a fee | No funds | Free | na | na | More detail |
| Forefront | 0.15% | Only Vanguard Funds | Free | Free Vanguard ETFs only | Free | na | More detail |
| (Source: ThisisMoney.co.uk Jan 2023. Administration fees may be levied monthly or quarterly | |||||||
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