Investors rush to use "Bed and ISA" strategy

Investors are rushing to use the "Bed and ISA" strategy. This surge comes after Chancellor Rachel Reeves increased capital gains tax rates on stocks and shares. Stockbroker Hargreaves Lansdown reported a 59% increase in clients using this method compared to the previous year. The "Bed and ISA" strategy involves selling investments in a regular account and buying them back within an Individual Savings Account (ISA). This allows investors to avoid future taxes on gains. The tax rates for capital gains have risen. Basic-rate taxpayers now pay 18%, while higher earners face a 24% tax rate. Sarah Coles from Hargreaves Lansdown noted that the increased rates and lower allowances have made the Bed and ISA strategy more appealing. However, she cautioned that investors need to be careful not to exceed their £3,000 annual capital gains tax allowance, as higher earners could end up facing a tax charge. Investment platform Interactive Investor also observed a significant increase in Bed and ISA transactions in 2023. This change in tax policy follows a reduction in the capital gains tax allowance from £12,300 to just £3,000. Under the new rules, a higher earner with £4,000 in investment gains would owe £240 in taxes. Additionally, the dividend allowance has been cut from £2,000 to £500, increasing tax bills for some investors. Tax revenues from capital gains are expected to double by 2029-30, thanks to these changes. Investors have until the end of the tax year in April to maximize their allowances. Up to £20,000 can be placed in an ISA, allowing for tax-free growth and income.