How does a 'Bed and ISA' investment work?
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I have a range of different investments that I have built up over the years, including a number of ISAs plus a portfolio of shares that are worth about £300,000. I am retired now and have no surplus income to put into ISAs, but I have heard about doing a “Bed and ISA” instead. Can you explain what that means, please?
Phil Beck of Smith & Pinching responds:
Bed and ISA is certainly a rather funny expression, but it actually describes a fairly straightforward process. It simply means selling assets you have in a general investment portfolio and buying them (or alternatives to the same value) back again in an ISA. Once they are in an ISA, any gains you make will benefit from advantageous tax treatment, irrespective of the size of the gain.
You can only invest up to your ISA allowance in any tax year, so you won’t be able to move all of your portfolio in one go. The ISA allowance for the 2020/21 tax year is £20,000, so transferring the bulk of your general portfolio into ISAs would take several years.
However, you must bear in mind that when you sell any assets held in your general investment portfolio, if you make a gain at that point, it may be subject to Capital Gains Tax. Hopefully, by selling no more than £20,000 of assets per tax year, you can keep your gains down to below the Capital Gains Tax allowance of £12,300 (2020/21 tax year), but you will need to remember this if you make gains on other assets you hold that will need to be taken into account.
There will be charges involved in the process of selling and buying your investments, so do ensure you understand these before you go ahead. It is also important to know that if the portfolio includes individual shares, not just unitised investments, then the adviser must have specific qualifications in order to advise you.
Investments held in an ISA should be reviewed for performance and suitability on a regular basis, just as they should in a general investment portfolio. It’s important that your investments are right for you in terms of your investment risk profile, your aims and your preferences.
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.
For more information visit www.smith-pinching.co.uk