This money move helps you escape Hunt’s capital gains and dividend tax raid ‘overnight’ | Personal Finance | Finance

It may be too late to carry out complicated tax planning, but simple measures could still save thousands of pounds. One can be completed in just 24 hours.

Investors risk higher tax bills from April 6 when Hunt slashes the threshold for paying tax on capital gains from £12,300 to just £6,000. The capital gains tax (CGT) threshold shrinks again to just £3,000 from April 2024.

Hunt is also halving the amount of tax-free dividend income investors can earn each year from £2,000 to just £1,000 on April 6, then to just £500 next year.

Dividends above that are taxed at 8.75 percent for basic rate taxpayers, 33.75 percent for higher rate taxpayers and 39.35 percent for additional rate taxpayers.

These taxes only apply to savings and investments held outside of the Isa tax wrapper.

So savers can use their annual £20,000 tax-free Isa allowance to beat Hunt’s tax grab, said Alice Haine, personal finance analyst at DIY investment platform Bestinvest.

The process is known as “Bed & Isa”, which involves selling investments one day and buying them back the next inside an Isa. “It can work for shares, funds, investment trusts or exchange traded funds (ETFs) held in a general investment account or employee share plan,” Haine said.

Many older savers may have privatisation shares outside of an Isa but their holdings have been to small to pay tax on their income and capital gains. Thanks to Hunt, that could change and they should protect them now.

Investors usually have to wait 30 days after selling their investments before buying them back, under a rule designed to stop a sneaky tax dodge known as “Bed and Breakfasting”.

This saw investors sell their assets at the end of the tax year on April 5 to use their annual CGT allowance, and buy them back next day.

“That’s no longer possible but Bed & Isa is an exception to that rule,” Haine said.

Investors who act fast can take up to £12,300 of profits free of CGT before April 6. “If the investments are held jointly with a spouse or civil partner, a couple can double this to £24,600.”

You can do Bed & Isa after April 5, too, but at that point the CGT threshold will be much lower at just £6,000 each.

As well as sparing savers a CGT bill, the Isa structure puts an end to any worries about paying dividend tax for life.

Just remember to calculate your capital gain carefully before selling your investments to ensure you don’t bank too much profit and make yourself liable for CGT, Haine added. 

If you don’t have a stocks and shares Isa from before, then you may be able to open one with any existing stockbroker you have dealings with, say, for your privatisation shares.

Otherwise AJ Bell, Bestinvest, Chelsea Financial Services, Hargreaves Lansdown, Interactive Investor and others offer competitive online Isa platforms.

If you are moving your investments to an Isa with the same provider, the sale and purchase can be done simultaneously with the whole thing done and dusted in just 24 hours, Haine said. 

Most platforms will complete the process automatically if you complete a Bed & Isa form, send Sarah Coles, senior personal finance analyst at Hargreaves Lansdown.

READ MORE: Recruit your kids to beat Hunt’s double tax raid – they’ll be grateful

You will pay two sets of trading fees when you sell and buy back your investments, plus stamp duty of 0.5 percent on the share purchase, so may have slightly less in your Isa afterwards.

You don’t have to buy the same investments, but can invest in different funds if you wish or even hold the money in your platform’s cash account.

Some platforms provide interest payments on cash balances and you could drip feed the money into the stock market thereafter.

Every adult can save up to £20,000 in an Isa this tax, which should be enough for most people to Bed & Isa their investments. Couples have £40,000 to play with.

If you need more, the under-18s get a £9,000 Junior Isa allowance, so you could pay money into that (but remember it will belong to your kids).

If you have already paid money into an Isa this tax year, including into a cash Isa, this will reduce the amount you can add now.

Some Isa platforms have a cut-off point for Bed & Isa transactions, which can be up to a week before the end of the tax year.

Another option, known as Bed & Pension, allows investors to shift money into my self-invested personal pension (Sipp) instead.

So don’t be a sleepy head. Time is short but this 24-hour trick can still help you escape Hunt’s savings and investment double tax grab.

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