What is Bed & ISA

Understand what Bed and ISA is and how it works

What’s a bed and ISA?

Despite the name, a bed and ISA doesn’t have anything to with opening an ISA as you sleep.

It refers to a pair of transactions that investors use to move their portfolio into a stocks and shares ISA - that’s an ‘individual savings account’ for anyone unfamiliar with the acronym.

In one transaction, an investor will sell some stocks in a regular brokerage account. At exactly the same time, they’ll try to buy the same stocks back in a stocks and shares ISA.

What’s the point?

Even though it’s probably fun trying to buy and sell stocks simultaneously, people don’t make bed and ISA transactions just for kicks. The reason they do it is because of the rules governing ISAs.

You can’t transfer stocks that you already hold in a regular brokerage account into an ISA. To get the tax benefits that come with an ISA, you have to deposit money into one and then invest it.

That means anyone who holds stocks and shares in a regular brokerage account will have to carry out bed and ISA transactions if they want to move them into an ISA.

Check our stocks and shares ISA page to see how you can open an ISA with Freetrade.

What does it cost?

Even if you managed to buy and sell your stocks at exactly the same time, performing a bed and ISA transaction will cost you some money. There are a few reasons for this.

First of all, buy and sell prices are different. A company that buys stocks from you will only sell them back to you at a higher price. That’s how they make money.

The next cost is stamp duty. You won’t pay this when you sell stocks but you do have to pay the 0.5 per cent tax as a buyer.

If you use a broker that charges you trading fees or any other commissions, you’ll also have to pay those too.

Further resources on ISAs and investing

Beginner's guide on stocks and shares ISA
Guide to ISA transfers
How to become an ISA Millionaire
Is Crypto a good choice for your ISA
Guide to how to invest in stocks

More terms

Maturity date

The date on which a gilt is redeemed and the gilt holder receives the repayment of the nominal amount and final dividend or coupon payment.
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52-week high/low

The highest, or lowest, price a share has traded at in a passing year.
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DMO

The United Kingdom Debt Management Office. It’s an executive agency responsible for managing the government’s debt and cash needs, primarily through issuing gilts and Treasury bills.
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Nominal amount

The face value of a gilt. It represents the amount that will be repaid to the holder at maturity and is also used to calculate the dividend or coupon payment.
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Clean price

The quoted price of a gilt, which excludes accrued interest
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Know Your Customer (KYC)

A legal requirement for financial firms to understand exactly who their customers are. Used to prevent money laundering and terrorist financing.
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Margin call

Learn what a margin call stands for in financial terms.
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Arithmetic Mean

The sum of a set of numbers added together and then divided by the total amount of numbers in that set.
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Hedge Fund

Investment funds that are often associated with riskier and shorter-term trading strategies.
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