What is a Bed and ISA?

If you're trying to make the most of your investments in the UK without handing over more than you need to in taxes, there’s a good chance you’ve stumbled across the term “Bed and ISA.” It sounds like something you’d do at a furniture store, not a move that could potentially save you a tidy sum on your capital gains.

But if you're sitting on investments outside of an ISA and wondering how to shift them into a more tax-friendly zone, Bed and ISA might just be your best-kept secret.

It’s also a good time to consider your broader ISA options — from Stocks and Shares ISAs to the Lifetime ISA. Understanding the rules can help you maximise tax efficiency across all your accounts.

Let’s break it down — from what Bed and ISA means, to how it works, and what you should keep an eye on before jumping in.

What is Bed and ISA?

In short, it’s a process that lets you move investments into an ISA without having to start from scratch. Since you can’t simply shift your existing shares or funds into an ISA directly, Bed and ISA gives you a workaround. You sell your investments outside the ISA, then buy them back inside it; same asset, new tax-free home.

The Bed and ISA meaning comes from the old "bed and breakfasting" trick investors once used to reset their capital gains, but this version is squeaky clean and HMRC-approved. It's now used by investors who want their money to work hard and tax-free.

So, if you’re already holding onto shares or funds in a standard trading account, and you’re eyeing up the ISA’s tax shelter like it’s the last sun lounger by the pool, you’re in the right place.

How Bed and ISA actually works

Now that we’ve cracked what it is, let’s look at how this strategy plays out.

Here’s the usual flow: you instruct your broker to sell investments from your general investment account. The cash from that sale is then used, often on the very same day to rebuy the same investments inside your ISA and the same shares, now safely tucked into a tax-free wrapper.

But here’s where it matters: understanding the bed and ISA rules is key if you don’t want to get tripped up.

• Firstly, the assets have to be sold and repurchased; you can’t just pick them up and plop them in an ISA.

• Secondly, you need to have enough room left in your annual ISA allowance to cover the buy-back (still £20,000 for the 2025/26 tax year).

• Thirdly, any gains from the sale could trigger capital gains tax if they push you over the annual exemption (£3,000 this year).

That said, most online brokers now offer Bed and ISA as a service, often linked to their best ISA for stocks and shares accounts. They handle both trades in one neat package — meaning fewer headaches and less chance of missing the market swing between sale and repurchase.

Why investors are using Bed and ISA more than ever

The appeal of Bed and ISA isn’t just about saving on paperwork. It’s about unlocking long-term tax efficiency without abandoning your current portfolio. Instead of starting from scratch, you’re migrating your existing investments into a smarter tax setup.

Once those investments land inside your ISA, any growth, dividends, or interest is completely shielded from tax. No unexpected surprises when your portfolio does well.

Plus, managing your portfolio gets a whole lot simpler. Inside an ISA, there’s no need to track gains for HMRC or worry about dividend allowances. Everything’s wrapped in one tax-free, tidy place.

And the best part is that you’re doing it all with assets you already believe in. There’s no need to change your strategy, just how you hold it.

Bed and ISA disadvantages

Of course, no investing move comes without a few fine print warnings, and bed and ISA disadvantages are worth a close look.

First up: capital gains tax. Selling your shares, even just to rebuy them inside an ISA, still counts as a taxable event. If your gains exceed your CGT allowance, you could face a bill, even though you're technically staying invested in the same thing.

Then there's the risk of price movement. Markets don’t pause for admin. There could be a slight gap between when your shares are sold and when they're bought back, and if the price jumps, you may get fewer shares in return. If it drops, you’ve just locked in a loss.

And don’t forget trading fees. Some brokers charge for both sides of the trade, although many are now trimming costs, or even offering it fee-free as part of their Bed and ISA service. Still, it’s worth checking.

Lastly, there’s the ISA allowance cap — you can only move up to £20,000 into an ISA each year. If your investment pot is larger than that, you’ll need to spread it over a few tax years. This often leads to the common question: how many ISAs can I have? The answer lies in the rules around holding different types, but only contributing to one of each type per year. It’s a long game, but a potentially rewarding one.

Should you use Bed and ISA?

If you’ve got investments sitting outside your ISA and you’re in it for the long haul, Bed and ISA could be a smart yearly move. It’s especially appealing if you’re not facing a major CGT bill or if you’ve still got most of your allowance free.

It won’t give you an overnight tax miracle, but it’s a solid way to gradually shift your wealth into a tax-efficient structure without having to completely rebuild your portfolio.

And while the disadvantages are real, they’re usually manageable with a bit of timing, planning, and clarity on your tax situation. Most investors who use Bed and ISA treat it as an annual ritual, another step in building a portfolio that’s not just profitable, but protected.

Bottom line

In the world of investing, the little things can make a big difference. Bed and ISA is one of those small, clever strategies that used right can help keep more of your gains where they belong: in your pocket.

So, if your current portfolio is still exposed to tax, and your ISA allowance is sitting unused, it might be time to consider giving your investments a more permanent home.

Just remember: it's not about flipping your strategy; it’s about flipping how you hold your strategy. And sometimes, that makes all the difference.

FAQs

Can I do Bed and ISA myself?

Yes, if you’ve got a general investment account and an ISA with the same provider. Many brokers let you do it manually or through their dedicated Bed and ISA service.

Will it trigger capital gains tax?

It might. Selling the investment outside your ISA is a taxable event. If you’ve made a gain above the annual CGT exemption, you may owe tax, even if you rebuy the same thing inside your ISA.

Can I do this every year?

Absolutely. Many investors use Bed and ISA every year as a way to slowly move more of their portfolio into a tax-free ISA, using up their allowance bit by bit.