UK investors are increasingly turning to 'Bed & ISA' strategies at the start of the new tax year, with investment platform AJ Bell reporting a surge in their popularity this Spring. This trend is being driven by what the platform describes as 'tax attacks' on all sides, as individuals seek to shield their investments from rising tax liabilities.
A 'Bed & ISA' involves selling investments held in a taxable account, such as a general investment account, and immediately repurchasing them within an Individual Savings Account (ISA). This process allows investors to utilise their annual Capital Gains Tax (CGT) allowance before it potentially expires, while simultaneously moving assets into a tax-efficient wrapper where future gains and income are free from CGT and income tax.
The increased adoption of this strategy comes against a backdrop of tighter fiscal policy impacting UK households and businesses. The government's decision to freeze income tax thresholds, coupled with reductions in the CGT annual exempt amount and dividend allowance, means more people are being drawn into higher tax brackets or finding a greater proportion of their investment returns subject to taxation. For the 2024/25 tax year, the CGT annual exempt amount has been halved to just £3,000, down from £6,000 in 2023/24 and £12,300 in 2022/23. Similarly, the dividend allowance has been cut to £500 from £1,000.
This environment is prompting a re-evaluation of investment strategies among UK savers and investors. While the FTSE 100 has shown resilience, with the index recently hitting record highs, the focus for many individuals is now on how to maximise their net returns after tax. The Bank of England's current interest rate policy, aimed at tackling inflation, also plays a role, as higher returns on savings accounts could further expose unshielded investment income to taxation for some.
The surge in Bed & ISA activity underscores a broader shift towards tax-efficient investing as a priority for many UK households. It highlights how changes in tax policy can directly influence individual financial behaviour, encouraging proactive measures to protect wealth. For businesses operating in the financial services sector, this trend could also indicate a greater demand for tax planning advice and ISA products.
Source: AJ Bell