The HMRC’s ISA regulations prohibit the direct transfer of existing shares (with a few exceptions relating to a savings-related share option or Share Incentive Plan) into a Shares ISA. But that’s not to say you can’t do it at all.

By selling existing share to generate cash (which you can subscribe to your ISA, subject to any subscription you’ve already made in that tax year) and then re-purchasing those same shares (or Fund units) – a process known as a ‘share exchange’ or more commonly ‘Bed & ISA’ - you can move an existing holding into an ISA and thereafter protect it from Capital Gains Tax (CGT) and any liability to higher-rate income tax on future dividends.

But before you embark on this, do remember to check that the stock you want to move into your ISA is actually eligible to be held in that account. As a rule of thumb, securities listed on a Recognised Stock Exchange (e.g. LSE, NYSE, etc) will usually be eligible, as are most UK funds and Investments Trusts. ETFs based within the EU generally qualify but those based elsewhere, including USA, are highly unlikely to be eligible. Bonds and Gilts with 5 years or more to maturity (at the point of purchase) will generally be eligible; those with shorter maturity dates are not. Stocks listed exclusively on AIM, PLUS-quoted or PLUS-traded are not eligible. If in doubt, do check with us before selling stock.

One way to check is to start a ‘dummy’ trade in your ISA, if it is an ineligible stock we’ll display a message stating “This security cannot be traded within this account type” before you get to the price quote stage.

Finally, before explaining the process, there a few points you should bear in mind:

• HMRC requires that:
  • The sale of investments held outside of your ISA will be treated as a disposal for CGT purposes and any gain may be taxable, after taking into account your annual CGT limit,
  • the investments must not be purchased from your spouse, partner, civil partner,
  • the investments must be bought at the open market price,
  • any stamp duty or stamp duty reserve tax (SDRT) paid on the purchase of the ISA investments must be paid out of cash held in the ISA, and
  • the funds generated by the disposal of your shares must be available to meet the purchase on settlement day.
• When selling and re-purchasing shares you already hold in a Dealing account with Selftrade, our process (explained below) helps ensure you do not inadvertently contravene these requirements.
• Although the shares sold and re-purchased must belong to you, you can receive funds from another person to invest into your ISA. Those funds could arise from a share sale but that will, of course, be treated both as a disposal by that person for CGT purposes and as a gift for inheritance tax purposes. We can accept transfers of cash between the accounts of spouses held with Selftrade – any other credits must come via the account owner’s debit card or form their nominated bank account.
• You’ll bear a cost over and above your dealing charges, in that the shares will be sold and re-purchased at different prices due to the market bid/offer spread. This spread can, particularly on smaller stocks, be significant.
• You’ll pay our normal dealing fee on sales and purchases, and stamp duty on the purchase. The £1 PTM levy will also apply on trades over £10,000.

So, having considered these points, checked eligibility, and decided to make the switch into your Share ISA, here’s how you do it ...

This step-by-step guide takes you through the process to sell and re-purchase your shares online. You’ll notice in step 3 that we advise you to check the cost of the spread and call our dealers if this is more than £50 since we can usually contain this cost by manually dealing the shares on your behalf. Should this be the case, call our Dealers rather than following step 3 onwards – we’ll make the trades and move the cash for you.

You’ll then receive contract notes for both transaction into your message box and your History will show these trades in the normal way. Remember to keep a note of the gain on the sale as part of your CGT calculations.

If you’ve any questions about how to ‘Bed & ISA’, our Customer Services team will be pleased to help. Do give them a call.