Autumn Budget CGT speculation driving Bed & ISAs – what you need to know

Worries about potential Autumn Budget changes are driving more investors to transfer investments into ISAs and pensions through Share Exchange (Bed & ISA).

What is Share Exchange?

If you have shares in an HL Fund and Share account, you can use the Share Exchange process to sell them outside an ISA, move the cash into the ISA wrapper and buy back the same shares again, all in one instruction.

With HL, you can only transfer shares through Share Exchange. You also have to stick to your overall £20,000 ISA allowance.

Why are more investors using Share Exchange?

When your investments are in an ISA or SIPP, you don’t have to worry about UK dividend tax or capital gains tax (CGT).

Multiple investment platforms are seeing upticks in requests to transfer existing investments to tax-efficient accounts compared to previous years.

But this isn’t completely surprising with the year-on-year cuts to the CGT allowance, which now sits at only £3,000. The dividend tax allowance has also shrunk in recent years from £2,000 to £500.

However, speculation that the new Labour government will change capital gains tax (CGT) in the Autumn Budget seems to be a main driver.

A perceived shortfall in balancing the books means Labour is likely to increase tax in a few areas, with CGT being rumoured as one of them.

Currently taxed at a lower rate than income, many have argued this is a logical tax to change. In fact, it was suggested by the Office of Tax Simplification back in 2020.

So, as investors might feel the squeeze in this area, many have looked for solace in tax-efficient ISAs and Self-Invested Personal Pensions (SIPPs) through the Share Exchange process.

This isn’t personal advice. ISA, pension and tax rules can change, and their benefits depend on your circumstances. If you’re not sure what’s right for you, ask for financial advice. Remember, all investments can rise and fall in value so you could get back less than you invest.

Should you consider Share Exchange?

Transferring shares from an HL Fund and Share account into an HL Stocks and Shares ISA is a sensible option if you’re worried about your CGT allowance and you still have some of your annual £20,000 ISA allowance left.

This way you can use your £3,000 CGT allowance to realise any gains, and at the same time shelter these investments from CGT for the future.

However, there are a few extra things to think about before choosing to use Share Exchange.

Buying back shares in an ISA does come with its extra costs, like dealing and holding charges. And you might not get back the exact number of shares if the price fluctuates between buying and selling.

When selling your shares to buy back, you could also have to pay CGT if you have any profits over £3,000.

You can also transfer shares in this same way into a SIPP. But as it’s for retirement, you’ll usually need to be at least 55 (rising to 57 from 2028) before you can access the money in your pension.

Remember, our charges vary depending on different accounts too, like the Stocks and Shares ISA and SIPP, so make sure you know how much you’ll be paying.

Now of course CGT changes aren’t guaranteed to appear in the upcoming Autumn Budget. However, it’s certainly worth considering Share Exchange as an option if you think any changes here could impact you and your investments.