ISA alert: Britons urged to consider 'nifty little trick' to avoid tax on savings as deadline looms

Experts say moving assets into an Individual Savings Account through a strategy known as Bed & ISA can shield future income and gains from tax.

Investors face a race against time to complete Bed & ISA or Bed & Pension transactions before the 2025-26 tax year concludes at midnight on 5 April.

The deadline pressure intensifies this year because the tax year end coincides with the Easter bank holiday weekend. Good Friday falls on 3 April, creating an additional hurdle for those attempting to process transfers.

Brokers and investment platforms typically impose earlier cut-off dates to guarantee sales and transfers complete in time.

The entire Bed & ISA process generally requires up to 10 days for digital transfers. Those needing to convert physical share certificates to a nominee account first should allow four weeks or longer.

Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners, describes the strategy as a valuable opportunity for those worried about their tax exposure.

"A raft of tax changes in recent years has tightened the squeeze on savers and investors, particularly for those holding assets such as shares or funds outside tax-efficient wrappers, leaving many investors feeling increasingly concerned about the tax treatment of their savings and investments," she says.

"This is why shifting investments into a tax-protected ISA or pension is becoming an increasingly attractive option for many. Thankfully, there is a nifty little trick investors can take advantage of to protect their investments that does not incur a tax charge."

The technique involves selling holdings kept in taxable accounts and repurchasing them within an Individual Savings Account or pension wrapper.

This manoeuvre shields those assets from future levies on income and capital gains, though investors must ensure they stay within their £3,000 annual CGT exemption during the process.

Transferring investments into ISAs delivers substantial tax benefits that many Britons overlook. These wrappers protect money from future charges on interest, dividends and capital gains.

The annual ISA allowance stands at £20,000, resetting on 6 April. Meanwhile, the CGT exemption of £3,000 represents a fraction of the £12,300 available in 2022-23.

Savers face mounting pressure from multiple directions. The Autumn Budget 2025 extended income tax threshold freezes until 2031, while a two-percentage-point dividend tax increase takes effect from 6 April.

CGT rates rose in October 2024, climbing from 10 per cent to 18 per cent for basic-rate taxpayers and from 20 per cent to 24 per cent for higher and additional-rate payers.

The dividend allowance has shrunk to just £500, down from £2,000 in 2022-23 and representing a 90 per cent reduction from the £5,000 available in 2017-18.

Completing a Bed & ISA transaction requires several steps. Savers without an existing account should first establish a Stocks and Shares ISA, while those with one already can proceed directly.

Investors must calculate how much of their £20,000 allowance remains unused across all ISA types held with different providers.

The next stage involves selling holdings in a general investment account up to the desired transfer value, taking care not to exceed the £3,000 CGT threshold. Sales may take time to settle before cash becomes available.

When transferring within the same provider, expect separate trading fees for selling and buying. Purchases of UK-listed shares attract 0.5 per cent stamp duty, excluding AIM stocks.

The buy-sell spread typically means ending up with marginally fewer shares than before. Those switching providers should wait for funds to appear as cash before initiating the ISA transfer.

Savers directing investments into a Self-Invested Personal Pension can use the equivalent Bed & Pension approach, though the same deadline urgency applies.

Pension contributions prove particularly attractive for those who can leave money untouched until retirement. Contributions receive tax relief at the individual's marginal rate, enabling higher and additional-rate taxpayers to claim an extra 20 per cent and 25 per cent respectively beyond the basic 20 per cent relief.

Workers may contribute up to 100 per cent of relevant UK earnings, capped at the £60,000 Annual Allowance encompassing all pension arrangements, tax relief and employer contributions. Money cannot be accessed until age 55, rising to 57 from 2028.

Married couples and civil partners gain additional flexibility through interspousal transfers, which allow assets to pass between spouses without triggering tax charges.

This enables couples to utilise two sets of CGT exemptions and ISA or pension allowances, proving especially beneficial when one partner pays a lower income tax rate.