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Question: I have several stocks and shares I have bought over the years and want to know how I can convert them into a stocks and shares ISA. Do I have to sell them all and then rebuy them once I open the ISA or can I just transfer them?
Answer: This is a really common question and it is good that you are thinking about it, because moving investments into an ISA can make a big difference to your tax bill over time.
The first thing to be clear about is that you cannot simply re-label existing shares as being inside an ISA. To get investments into the tax-free ISA wrapper, they have to be bought there. That does usually mean selling and rebuying, but it does not have to be as clunky or risky as it sounds.
If your shares are currently held in a general investment account, often called a GIA, the simplest route is what is known as a “bed and ISA”. This is where your provider sells the investments in your GIA and immediately repurchases them inside your ISA, using your annual ISA allowance.
If your shares are with the same provider, this can often be done back to back, sometimes even on the same day.
The big advantage is that your money is out of the market for as little time as possible, which matters in choppy conditions. With markets jumping around as much as they have recently, many investors are understandably keen to avoid sitting in cash for longer than necessary.
It is worth checking costs before you go ahead. Some providers charge an ISA wrapper fee or dealing charges, which may affect whether it makes sense to move everything at once or to spread it over time.
Tax is the other key consideration. Selling investments outside an ISA counts as a disposal for capital gains tax. Everyone has an annual capital gains tax allowance, which for the current tax year is £3,000.
That means you can make gains of up to £3,000 across all your investments in a tax year before any capital gains tax is due. Anything above that may be taxed, depending on your income tax band. The allowance is very much a “use it or lose it” benefit and it cannot be carried forward.
Because that allowance is now much smaller than it used to be, careful planning matters more than ever. If gains are modest, you may be able to bed and ISA without any tax to pay. If gains are larger, it can make sense to move investments gradually over several tax years, using the allowance each time rather than triggering a bigger bill in one go.
This is where timing can really help. If you had started the process in March, for example, you could have used both the CGT annual exempt allowance and ISA allowance for the tax year that ended on 5 April and then used the new allowances from 6 April, effectively sheltering more money more quickly. That option is gone for this year, but it is a useful thing to bear in mind for the future.
There is also a potential opportunity if you have a spouse or civil partner. Investments can be transferred between spouses without triggering capital gains tax. That means you could move some assets into your partner’s name and then use their capital gains tax allowance and their Isa allowance as well, doubling the amount you can move into tax-free wrappers.
It does require coordination, but for many couples it is one of the most effective planning tools available.
The key point is that while you cannot simply move existing shares straight into an ISA, you do not have to start again from scratch. A bed and ISA is a well-established and relatively straightforward process and, done carefully, it can minimise both tax and market risk.
Once investments are inside an ISA, any future income or growth is free from income tax and capital gains tax.
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