How To Move Dividend-Paying Shares Into An Isa Without Triggering A CGT Bill

Shares held within an ISA come with significant benefits that you don’t get with a General Investment Account (GIA). For example, with an ISA:

• Dividends are free from Dividend Tax
• All future growth is free from Capital Gains Tax
• You don’t need to report ISA income or gains to HMRC

That often makes switching investments from a taxable account into a tax-free account, a valuable and smart move.

If your shares are held in a General Investment Account (GIA), HMRC will almost certainly not allow you to transfer them directly*.

Instead, you’ll need to sell the shares, move the cash into your ISA, and then buy them back if you want to hold the same portfolio. This process is known as a ‘Bed and ISA’.

It can be a very straightforward process that your investment platform will usually handle for you. However, there’s a downside: when selling shares held in a taxable account such as a General Investment Account, you’ll need to consider Capital Gains Tax (CGT).

* The main exception to this rule is for certain HMRC-approved employee share schemes, such as Sharesave (SAYE) and Share Incentive Plans (SIPs), where qualifying shares can sometimes be transferred directly into an ISA.

Capital Gains Tax is a tax you may need to pay if you sell an investment for more than you originally paid for it.

The profit you make is called a ‘capital gain’.

For example:

You buy shares for £8,000.

• A few years later, they’re worth £12,000.
• You sell them.
• Your capital gain is £4,000.

Depending on your circumstances, some or all of that gain could be taxable if it’s held in a taxable account (so, not an ISA or pension).

Every tax year, most people are given an amount that can be gained free from Capital Gains Tax – it’s known as your annual exemption.

If your gain falls within your available annual exemption, you can usually sell the shares without paying any CGT.

You can then move the cash into an ISA and buy the investments back.

For example

Imagine you originally bought shares for £18,000.

They’re now worth £21,000.

If you sell them, you’ve made a capital gain of £3,000.

Your annual CGT annual exemption is £3,000.

Because your gain doesn’t exceed your exemption:

• Capital gain: £3,000
• CGT annual exemption: £3,000
• CGT to pay: £0

You can then move the proceeds into your ISA and buy the shares back without paying any Capital Gains Tax.

But if your gain is larger than the exemption…

Then there could be a tax bill to pay.

However, you may still have options to reduce – or eliminate – that bill.

Some investors choose to move their investments into an ISA gradually over several tax years, making use of a new CGT annual exemption each year, for example.

Others find that they’re able to offset capital losses against their gains.

That’s because if you’ve sold other investments at a loss, those losses can often be used to reduce your taxable gains and, in turn, the amount of CGT you owe.

The right approach for you will, of course, depend on your particular circumstance and annual income.

It’s worth remembering that selling investments carries some risk.

Markets move every day. That means there’s a chance the share price could rise between selling your shares and buying them back inside the ISA.

But equally, it could fall.

Many Bed and ISA services complete both transactions as quickly as possible, helping to reduce this risk, but it can’t be removed entirely.

If your shares are sold shortly before a dividend is paid, you might miss that dividend payment.

But, if the shares are bought back quickly inside the ISA before the next dividend is due, you won’t miss out and you’re gaining future payments that are now tax-free.

Can I move all my shares into an ISA at once?

Not always.

Remember, ISAs have an annual contribution limit (£20,000 for adult stocks and shares ISAs, £

If your investments are worth more than your remaining ISA allowance for the tax year, you may need to move them across over several years.

It can be a very tax-efficient strategy, but it’s most valuable if you:

• Own investments outside an ISA
• Expect to receive taxable dividends in future
• Expect your investments to continue growing in value

If your shares are already inside an ISA or pension, there’s no need to move them.