- Bed and ISA transactions increased by over 3.5 times on the AJ Bell platform in March and April 2023 compared with 2022
- Changes to the Capital Gains Tax (CGT) allowance and the dividend allowance have spurred investors to seek to protect their gains and income from the taxman
- The tax-free CGT allowance was slashed from £12,300 to £6,000 on 6 April this year, with the tax-free dividend allowance being reduced from £2,000 to £1,000 at the same time
Laura Suter, head of personal finance at AJ Bell, comments:
“The wealth tax raid spurred investors into action in the final weeks of the tax-year end, bringing in a record year for Bed and ISA transactions on the AJ Bell platform as people rushed to lock in gains and protect dividends from a future tax hit.
“The Chancellor has sliced in half the tax-free allowances for dividend and capital gains taxes, meaning many more face higher tax bills this year on their investments. Ever since his announcement we’ve seen more investors shifting their money into ISAs.
“It’s logical that investors wanted to stash as much money as possible in their ISAs. Some of these ‘Bed and ISA’ transactions will have been people locking in capitals gains up to the previous £12,300 limit and moving the money into an ISA, while others will have been moving their income-producing investments into the tax wrapper to shield against the lower dividend allowance.
“We already know that an estimated 1.8 million more people will be caught in the dividend tax net in the next two years, according to HMRC figures released under a FOI request from AJ Bell. It found 635,000 more people will pay tax on dividends in the current tax year, as the tax-free allowance was cut from £2,000 to £1,000, and 1,115,000 additional individuals will be brought into paying dividend tax from April 2024, when the allowance is cut again to just £500. On top of that the changes to CGT mean that 260,000 more individuals and trusts will be paying CGT for the first time by 2024/25, according to HMRC figures.
“Despite many people leaving it down to the wire of tax-year end to complete these transactions, we’ll also see a surge in the number of people who are doing Bed and ISA right at the start of this tax year. By moving money into an ISA and maxing out their allowances early on, they protect more of it from being hit with tax this year.”
Source: AJ Bell
Bed and ISAs explained:
A Bed and ISA is the process of an investment being sold in a Dealing Account and then purchased in an ISA, utilising an investors’ available CGT allowance on the sale in the Dealing Account and shielding the assets from tax on growth and dividends in the future within the ISA. These transactions are carried out at the same time to minimise exposure to market movements on the investment, with only one dealing charge being applied.
