49% uptick in Bed & ISA in October amid CGT speculation

• interactive investor saw a 49% increase in Bed & ISA applications in October 2024 vs September 2024, as its investors anticipated the now confirmed changes to capital gains tax in the 30 October Budget
• Bed & ISA involves transferring assets held outside a tax wrapper into an ISA, so that future investment growth and income is sheltered from tax, and can be a useful way to take advantage of any unused ISA allowance

interactive investor, the UK’s second-largest investment platform for private investors, recorded a 49% increase in Bed & ISA applications in October 2024 vs September 2024, as investors anticipated the now confirmed capital gains tax (CGT) increase in the Autumn Budget that took place on 30 October. 

• Learn with ii: What is the ISA Deadline? | Bed & ISA Rules | How many ISAs can I have?

The rumoured CGT increases had a huge impact on a number of ii investors who chose to Bed & ISA ahead of the Autumn Budget – where the changes meant that the lower rate of CGT increased from 10% to 18% and the higher rate from 20% to 24% from the 30 October at midnight. 

Bed & ISA involves transferring assets held outside a tax wrapper into an ISA, so that future investment growth and income is sheltered from tax. It can also be a useful way to take advantage of any unused ISA allowance, especially if an investor has less ‘new’ money to invest.

Customers will pay a trading fee on the re-purchase, not the sale. Customers will also pay stamp duty and market spread costs. CGT is payable on any profits above a person’s annual allowance, but moving the investments to an ISA means you won't pay capital gains tax on those profits in future.

Craig Rickman, Personal Finance Expert at interactive investor, says: “Our data shows that the number of people who used Bed & ISA jumped dramatically in October, as investors feared Chancellor Rachel Reeves may target the annual capital gains tax exemption at this year’s Autumn Budget.

“This handy allowance shields you from CGT on the first £3,000 you make by selling shares or other assets, and resets at the start of the new tax year. And a savvy tactic to here is to realise a profit up to the allowance by encashing shares outside tax wrappers and repurchasing them within an ISA, which grows tax free.

“The CGT exemption has witnessed swingeing cuts in recent years. It stood at £12,300 in 2022-23, but was slashed to £6,000 the following tax year, and halved to £3,000 from April 2024. This has given investors less scope to protect investment profits from CGT. There were growing concerns the new chancellor may wield the axe last month, perhaps slashing the CGT allowance oblivion, to help rebalance the public finances. But fortunately for investors with holdings outside of tax wrappers, this didn’t materialise.

“For those who are yet to Bed & ISA this tax year, the good news is there’s still time. You have until 5 April 2025 to act, but don’t leave things till the last minute as your provider may need a few weeks to process the request.

“The attractions of Bed & ISA have increased since the Budget after Rachel Reeves jacked up the CGT rates on sales of shares from 10% to 18% at the basic rate, and from 20% to 24% at the higher rate. These changes took effect at midnight on 30 October.

“If you have holdings in a general investment account or equivalent, and provided you have sufficient spare ISA allowance, it’s wise to use this year’s CGT exemption to Bed & ISA before it’s lost. This will shelter any future gains on these holdings from HMRC.”