What is a Bed and ISA transfer?
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I have a number of different investments that I’ve taken out over the years. Some of it is in ISAs but I also have a portfolio of other investments along with some savings accounts. I’ve decided recently that I should take financial advice and my adviser suggested a “Bed and ISA” transfer. Can you explain what this means, please?
Jeremy Woodruff of Smith & Pinching responds:
I understand why you might be confused: Bed and ISA is a somewhat odd description, but it is in fact a fairly simple process. What your adviser is suggesting is that you transfer some of your non-ISA savings and investments into an ISA wrapper in order, I assume, to give you better tax efficiency. This is done by selling or cashing in non-ISA savings and investments and re-investing into equivalent ISA savings and investments.
When your money is in an ISA – either a Cash ISA or a Stocks & Shares ISA – any interest or investment gains are free of tax, however large the value grows to be. There are other allowances which may be available to you outside an ISA wrapper, such as the Personal Savings Allowance and the Dividend Allowance, but these have limits and may be affected by the tax band in which you fall.
Moving your savings and investments into ISAs should be done in a managed way for two principal reasons. Firstly, there is an annual ISA allowance that limits the amount that you can put into ISAs in the tax year. This currently is £20,000. The second factor to take into account is that if you make a gain when selling your investment assets to put them into an ISA wrapper, you may incur a Capital Gains Tax liability if your total taxable gains in the tax year exceed the Capital Gains Tax Allowance, which stands at £12,300.
You need to bear in mind that there may be fees and charges when buying and selling your investments. It’s also important to be aware that there are circumstances where your adviser may need specific qualifications in order to advise you, such as if your portfolio includes individual shares, not just unitised investments.
It’s important to consider your investment strategy in the light of your circumstances and your goals, and to maximise the tax efficiency of your portfolio. Advice will be critical to ensure you are getting the right balance of savings, investments and pensions.
Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested. They assume the 2021/22 tax year and may be subject to change.
For more information, please visit www.smith-pinching.co.uk