Bed and ISA: what the capital gains tax actually costs

What bed and ISA actually is

Two trades, usually a few seconds apart. You sell a holding from a general investment account — the ordinary, taxable kind — and immediately buy the same holding back inside a stocks and shares ISA. Most platforms will do both legs for you in one instruction and charge one dealing fee, or none.

The holding doesn't change. What changes is the wrapper around it. Inside an ISA, dividends aren't taxed, gains aren't taxed, and none of it goes anywhere near a tax return — for as long as the money stays there.

Yes, it triggers capital gains tax

This is the part that surprises people. The sale is a disposal like any other. You rebought the same shares a second later, in your own name, with your own money — and HMRC still counts it.

The first £3,000 of gains in a tax year is exempt. Above that, shares and funds are taxed at 18% if the gain sits inside your basic-rate band and 24% above it. Those are the rates that came in on 30 October 2024 — a lot of older articles still say 10% and 20%.

Worth knowing how far the exempt amount has fallen: it was £12,300 in 2022/23 and £6,000 in 2023/24. The gain that escapes tax entirely is now about a quarter of what it was four years ago, which is why bed and ISA produces a bill for people it never used to.

What the bill looks like

Say you hold £20,000 of a global fund in a general account. You paid £12,000 for it over the years, so the gain is £8,000.

• Gain: £8,000
• Less the annual exempt amount: £3,000
• Taxable: £5,000
• Tax at 24%: £1,200. At 18%: £900.

Now the same holding, bought for £17,000 instead. The gain is £3,000, the exempt amount covers all of it, and the tax is nothing. Same trade, same wrapper, same benefit afterwards — and a £1,200 difference on the way in, decided entirely by what you originally paid.

One more, because it's the version people ask about. The exempt amount is per tax year and doesn't carry forward. Sell half the £20,000 holding now and half after 6 April, and each disposal has a £4,000 gain, of which £1,000 is taxable — £240 a time, £480 across the two years against £1,200 in one go. Whether that's worth waiting a year for depends on your numbers, and there's a calculator below that does it with them.

The 30-day rule, and why it doesn't stop you

Sell shares and buy the same ones back in your own name within 30 days and HMRC matches the disposal against the repurchase. No gain is crystallised, no loss is banked, and the whole exercise does nothing. That's the rule that killed "bed and breakfasting", where people used to sell on 5 April and rebuy on the 6th purely to use up an allowance.

It doesn't bite here, because the repurchase happens inside an ISA — a wrapper that sits outside capital gains tax altogether. That's the entire reason bed and ISA works and bed and breakfasting doesn't. Same-day matching doesn't apply either, so your gain is worked out against the average cost of your pooled holding, not against the price you rebought at.

What the bill buys you

Two taxes you stop paying, both of which compound quietly.

Dividends. Outside an ISA, the first £500 of dividends a year is tax-free and the rest is taxed at 10.75%, 35.75% or 39.35% depending on your band. On £20,000 yielding 3%, that's £600 of dividends — £100 over the allowance, so a few pounds in year one. But the allowance is fixed at £500 while the holding grows. At £53,000 the same 3% is £1,592, and the tax on it is nearer £390 a year, every year.

The gain, eventually. £20,000 growing at 5% for twenty years is about £53,000 — a gain of £33,000. Sold in one go outside an ISA that's roughly £7,200 of capital gains tax. Inside, nothing, and nothing to report.

That's the trade in one line: a known bill today against an unknown-but-larger one later. The arithmetic turns on three things you have to supply — how long you'll hold it, what it yields, and what rate you'll be paying when you eventually sell.

The bits that catch people out

• The £20,000 is one allowance across all your ISAs. Cash, stocks and shares, Lifetime, Innovative Finance — one pot between them. If you've already paid £8,000 into a cash ISA this year, £12,000 is what's left for bed and ISA.
• Platform deadlines come before 5 April. Both legs have to settle inside the tax year, and most platforms set their own cut-off in late March. The allowance doesn't roll over.
• A loss has to be claimed. If the holding is down, selling crystallises a loss you can set against gains in the same year or carry forward — but only if you report it, and you have four years to do it.
• There's a gap between the two legs. Usually seconds. Occasionally, on an illiquid fund, longer — and you're out of the market for that window.
• Spouses and civil partners have their own allowances. £3,000 of exempt gains each and £20,000 of ISA allowance each, and transfers between them happen at no gain and no loss.

What changes in April 2027

Worth knowing, because the headlines have caused some confusion. The overall £20,000 ISA allowance is staying. What's set to change is the split: the cash ISA limit is due to fall to £12,000 a year for under-65s, with over-65s keeping £20,000, and uninvested cash sitting inside a stocks and shares ISA is due to be taxed. Tax on savings interest outside an ISA is also set to rise.

None of that touches the stocks and shares side of bed and ISA. If you want the detail, the cash ISA 2027 planner has it, and these are announced changes rather than settled ones — the Autumn Budget on 28 October is the next time they could move.

The honest summary

Bed and ISA isn't free and it isn't a loophole. It's a sale, taxed like a sale, in exchange for never paying tax on that holding again. Whether the exchange is a good one depends on the size of the gain you're sitting on, how long you'll hold, and what you'd otherwise pay — which is exactly the sort of thing that's miserable to do in your head and quick to do in a calculator.

Everything above is general information about how the rules work, not advice about what to do with your own money. WealthR Ltd isn't authorised by the Financial Conduct Authority. For anything with real money on it, a regulated adviser — or the free, impartial guidance at MoneyHelper — is the right call.

Frequently asked

This is general information, not financial advice. The figures WealthR shows are illustrative and depend on the inputs you provide. For decisions involving significant sums, please consult a qualified FCA-regulated financial adviser.