Should you sell some of your investments now?
I don’t ask because of the unknown extent of a banking crisis, the potential for recession, or the vagaries of what might happen to the stock market.
Instead, it’s due to something we know will happen for certain in just a fortnight: Jeremy Hunt’s tax raid on investment profits and dividends.
If you hold investments outside of an Isa – particularly if you’ve got a long-term pot of them or have made sizeable gains – you should consider selling now before the higher capital gains tax-free allowance runs out.
A tax raid is on its way and if you have investments outside of an Isa selling them and buying them back within the tax shelter via a Bed and Isa can pay off
On 6 April, as the new tax year begins, the annual capital gains tax-free allowance will be slashed from £12,300 to £6,000.
On the same day, the annual tax-free dividend allowance will halve from £2,000 to £1,000.
And there’s more bad news down the line, a year later, the CGT allowance will drop to just £3,000 and the dividend allowance will become a piddling £500.
Announced in November’s Autumn Statement, this was one of the Chancellor’s book balancing measures after Kwasi Kwarteng’s calamitous mini-budget, and it represents the biggest raid on everyday investors that we have seen for many years.
Any small investors hoping for a reprieve in last week’s Budget on the spectacular hacking back of capital gains tax and dividend tax allowances were left disappointed.
But there is a way to protect yourself against the more miserly future for CGT and dividends: get as much as possible into an Isa.
Within the tax-free wrapper of a stocks and shares Isa there is no capital gains tax to pay on profits or dividend tax to be paid on pay outs. And, as a bonus, there’s also no need to fill in details of either on a tax return.
This is why investing in an Isa makes sense and can be far more profitable than holding your investments outside of one, as gains can compound over the years without tax eroding them.
The easy way to get your existing investments into this tax shelter is via something known as a Bed & Isa, whereby you sell your shares, funds, investment trusts etc and then buy them straight back within an Isa.
The taxman is totally fine with you doing this and a Bed and Isa is a feature offered by most investment platforms, many of which can do pretty much all the work for you.
Those I have spoken to at investment platforms in recent weeks tell me that there has been a surge in Bed and Isa requests.
That’s hardly surprising as this is a potentially doubly profitable endeavour this year.
Not only do you benefit from the future protection against tax of holding investments in an Isa, but you also use up some of this year’s higher capital gains tax allowance.
As I noted above, this is particularly important for those who have investment pots built up outside of an Isa over the years, or who have made sizeable gains over the short term.
They are most at risk of getting caught out by a lower capital gains tax allowance and of having accumulated a healthy level of annual dividend income.
Any profits above the annual CGT allowance are taxed at 10 per cent for basic rate taxpayers and 20 per cent for higher rate taxpayers.
Currently, a higher rate taxpayer making £15,000 of capital gains in a year would pay tax on just £2,700 of that profit, landing them with a £540 bill.
But if they were to make the same gains after 6 April 2023, they would be liable for tax on £9,000 of their profits, meaning a tax bill more than three times bigger at £1,800.
By selling your investments you do something known as crystallise your gains – which is what triggers a capital gains tax liability.
What you can’t do is just sell some investments and then buy them straight back outside of an Isa. The taxman is wise to this and imposes a 30-day rule to stop it.
But selling investments and buying them back in an Isa is totally legit, hence the Bed and Isa system.
If you’ve got investments outside an Isa and hold a stocks and shares Isa with that same investing platform this should be an easy process, but if they are held in different places you will need to do the legwork yourself.
The other advantage of a Bed & Isa is that it helps use up some of this year’s £20,000 Isa allowance, something which most of us could not do with new money.
But you do need to get your skates on. The process takes time and there is just two weeks until the end of the tax year. Do not leave this to the last minute.
Compare the best DIY investing platforms and stocks & shares Isa
Investing online is simple, cheap and can be done from your computer, tablet or phone at a time and place that suits you.
When it comes to choosing a DIY investing platform, stocks & shares Isa or a general investing account, the range of options might seem overwhelming.
Every provider has a slightly different offering, charging more or less for trading or holding shares and giving access to a different range of stocks, funds and investment trusts.
When weighing up the right one for you, it’s important to to look at the service that it offers, along with administration charges and dealing fees, plus any other extra costs.
To help you compare the best investment accounts, we’ve crunched the facts and pulled together a comprehensive guide to choosing the best and cheapest investing account for you.
We highlight the main players in the table below but would advise doing your own research and considering the points in our full guide linked here.
>> This is Money’s full guide to the best investing platforms and Isas
Platforms featured below are independently selected by This is Money’s specialist journalists. If you open an account using links which have an asterisk, This is Money will earn an affiliate commission. We do not allow this to affect our editorial independence.
| Admin charge | Charges notes | Fund dealing | Standard share, trust, ETF dealing | Regular investing | Dividend reinvestment | ||
|---|---|---|---|---|---|---|---|
| AJ Bell* | 0.25% | Max £3.50 per month for shares, trusts, ETFs. | £1.50 | £9.95 | £1.50 | £1.50 per deal | More details |
| Bestinvest* | 0.40% (0.2% for ready made portfolios) | Account fee cut to 0.2% for ready made investments | Free | £4.95 | Free for funds | Free for income funds | More details |
| Charles Stanley Direct | 0.35% | No platform fee on shares if a trade in that month and annual max of £240 | Free | £11.50 | n/a | n/a | More details |
| Fidelity* | 0.35% on funds | £45 fee up to £7,500. Max £45 per year for shares, trusts, ETFs | Free | £10 | Free funds £1.50 shares, trusts ETFs | £1.50 | More details |
| Hargreaves Lansdown* | 0.45% | Capped at £45 for shares, trusts, ETFs | Free | £11.95 | £1.50 | 1% (£1 min, £10 max) | More details |
| Interactive Investor* | £9.99 per month, or £4.99 under £30k holdings, £12.99 for Sipp | £5.99 per month back in free trading credit (does not apply to £4.99 plan) | £5.99 | £5.99 | Free | £0.99 | More details |
| iWeb | £100 one-off | £5 | £5 | n/a | 2%, max £5 | More details | |
| Etoro* | Free but no Isa or Sipp | Investment account offers stocks and ETFs. Beware high risk CFDs in trading account | Not available | Free | n/a | n/a | More details |
| Freetrade* | Free for Basic account, £4.99 per month for Standard with Isa | Freetrade Plus with more investments and Sipp is £9.99/month inc. Isa fee | No funds | Free | n/a | n/a | More details |
| Vanguard | 0.15% | Only Vanguard funds | Free | Free only Vanguard ETFs | Free | n/a | More details |
| (Source: ThisisMoney.co.uk Jan 2023. Admin % charge may be levied monthly or quarterly | |||||||
