BED to ISA help.

[Paul2566]

Hi
While I would not usually consider dividend capture strategies, as I tend to try and pick a stock to hold and would consider myself an investor not a trader, I havea puzzle I need help to solve despite checking online.
The last couple of years I have maxed out my ISA and the wifes ISA so started 2 BED accounts.
I need to start thinking about the next tax year and how best to move stock from the BED account for 2022 and beyond.
I will of course keep an eye on tax implications as I go to minimize losses.
One strategy I am considering is selling after the dividend is declared and on the lead into the ex-dividend date from the BED account, transferring funds into the ISA and buying back the stock post ex-dividend date. I am just not sure how the timing works and if it would be effective.
The problem I have is the time delay, by the time I have sold in the BED, transferred funds to my bank account and moved them into my ISA I am looking at 4 or 5 days and while this delay could work in my favor, my luck suggests it is more likly to work against me.
All things being equal I am transferring the stocks likly to cause the biggest tax liabilities first.
Has anyone done this or can offer any advice or pitfalls to watch out for.
I appreciate that its just advice and any adverse outcome is my responsibility, but it may give me things to consider that I hadn't thought of.

In essence what I'm trying to achieve is to transfer stocks held in my BED into my ISA as efficiently as possible. With some types of stock I am given to understand dividend capture is less efficient (utilities ?) so I will try and make use of the SP changes around the ex dividend date. Others I may benefit from dividend capture.

Thanks in advance for anyone who can find the time to reply.

[doug2500]

By BED account I'm presuming you just mean the taxable investment account that the shares are in right now?

I've done a fair bit of this over the years and settled on this as my preferred way.

Wait until the end of the tax year rather than being clever with dividends. If you are keeping an eye on CGT and do this now there's still time for a takeover or something to trigger a CGT event. I presume you're just trying to maximise the transfer into ISA rather than being desperate to do this now?

If you have any spare cash, even in your savings, use this to fund the ISA then you can buy and sell at the same time. Then just replace cash. If anything happens between now and the tax year end you may have cash to do this.

Make sure you're not doing anything anywhere near the record date, no point in chancing missing out on a divi because of a sloppy broker - just not worth the trouble.

Edited to add - even a share with a 4% yield is probably paying 2% as one dividend, so if it goes ex and drops that much to me that's just daily volatility. Don't overthink it, many things cause movements of this size and long term it matters not.

[tjh290633]

Not sure what a BED account is, but if you have them with the same manager as your ISAs, there is no problem. At the beginning of the tax year you sell the required amount in the BED and transfer that to your ISA, which then becomes your subscription for the year. I have done this in a past disposing of a share in my General Investment Account and moving the proceeds to my ISA.

Regarding timing, you may wish to avoid selling an XD share, as the dividend will come into the "wrong" account.

If they are with different managers, then sell in one and get the proceeds sent to your nominated bank account, which should happen on the second day after you sell. Then transfer to your ISA account. It ought to be a simple operation.

TJH

[Paul2566]

doug2500

Yes the BED account is just a normal share account to hold shares in until I can use the next years ISA allowance to move the stocks into that.

I have as you suggested considered using cash to buy in the ISA before selling in the BED, and at the moment my circumstances would allow that, but I am always on the look out for a stock bargain so that could change before April. However I think this is the best option, but by April may not be available to me.

I appreciate its a nice problem to have, and its only a fairly recent one so I have only just started my research in the run up to April.

I share your concerns about trading around the exdiv date, but I am thinking of selling as soon as possible after the dividend is secured to perhaps capture any SP drop after. What is the earliest I can sell?. As I understand it the dates of note are the RECORD date, EX-DIVIDEND date and the DECLARED DIVIDEND date. If I understand it correctly I must hold the stock by close of business on the record date and still hold it on close of business on the ex-dividend date to quallify for the dividend, I could theoretically then sell at 08.00hrs the day following the ex-dividend.

It may be there is little benefit to be had but I thought its worth a little research.

Thanks for taking the time to reply

[tjh290633]

If I understand it correctly I must hold the stock by close of business on the record date and still hold it on close of business on the ex-dividend date to quallify for the dividend, I could theoretically then sell at 08.00hrs the day following the ex-dividend.

Not so. To ensure that you receive the dividend, you must be holding at the close on the day before the share goes XD and at the open on XD day. The Record date is irrelevant in this respect, as what you do on any day is reflected in the Record 2 days later.

TJH

[Paul2566]

tjh290633

Ah thanks for that, it was confusing me a little, I wasn't sure.

So if I understand you correctly I could sell the stock at say 08001hrs on the exdiv day and still get the dividend.

Which would potentially allow me to take advantage of any drop in the SP post exdiv, assuming I have funds in the ISA account to immediately buy back into the stock.

[swill453]

tjh290633

Ah thanks for that, it was confusing me a little, I wasn't sure.

So if I understand you correctly I could sell the stock at say 08001hrs on the exdiv day and still get the dividend.

Which would potentially allow me to take advantage of any drop in the SP post exdiv, assuming I have funds in the ISA account to immediately buy back into the stock.

I think you're on a hiding to nothing trying to finesse trading around the ex-div day. If it was that easy to gain an advantage everybody would be doing it.

Scott.

[kempiejon]

tjh290633

Ah thanks for that, it was confusing me a little, I wasn't sure.

So if I understand you correctly I could sell the stock at say 08001hrs on the exdiv day and still get the dividend.

Which would potentially allow me to take advantage of any drop in the SP post exdiv, assuming I have funds in the ISA account to immediately buy back into the stock.

I think you're on a hiding to nothing trying to finesse trading around the ex-div day. If it was that easy to gain an advantage everybody would be doing it.

Scott.

As Scott said there's no easy advantage trading x or cum div except perhaps when moving into a tax shelter.
I have been moving unsheltered to sheltered accounts for several years to harvest capital gains and avoid paying income on dividends, I would rather miss dividends, especially any clustered around February and March, when I sell in advance of the new tax year.

[SalvorHardin]

I share your concerns about trading around the exdiv date, but I am thinking of selling as soon as possible after the dividend is secured to perhaps capture any SP drop after. What is the earliest I can sell?. As I understand it the dates of note are the RECORD date, EX-DIVIDEND date and the DECLARED DIVIDEND date. If I understand it correctly I must hold the stock by close of business on the record date and still hold it on close of business on the ex-dividend date to quallify for the dividend, I could theoretically then sell at 08.00hrs the day following the ex-dividend.

A word of caution if you're planning to sell at market price the opening bell. If you are selling shares in a smallish company, you might get caught with a price that is substantially less than if you wait for a few minutes (or put a limit on the price). Market makers have been known to open trading in less liquid shares with a much wider spread (the difference between the price you get if you sell and the price you pay if you buy) than you would get later in in the day.

When I used to focus heavily on small oil companies in the early and mid 2000s, you would regularly see complaints online from people who had put sales overnight with instructions to deal as soon as the market opened. The price these people got was often much less than they were expecting, but within the hour the bid price had increased to where they would expect it to be. Market makers didn't want to be have to deal with large orders at the opening in a relatively illiquid share, unless it was at an advantageous price for them, so they widened their spreads at opening and narrowed them as the day progressed (before widening them again shortly before market close).

I remember one case where the spread on a small oil company was (in theory) 25p bid and 28p offer; the sale at just after 8am went through at 20p. About an hour later the spread was back to 25p bid and 28p offer.

[Paul2566]

I share your concerns about trading around the exdiv date, but I am thinking of selling as soon as possible after the dividend is secured to perhaps capture any SP drop after. What is the earliest I can sell?. As I understand it the dates of note are the RECORD date, EX-DIVIDEND date and the DECLARED DIVIDEND date. If I understand it correctly I must hold the stock by close of business on the record date and still hold it on close of business on the ex-dividend date to quallify for the dividend, I could theoretically then sell at 08.00hrs the day following the ex-dividend.

A word of caution if you're planning to sell at market price the opening bell. If you are selling shares in a smallish company, you might get caught with a price that is substantially less than if you wait for a few minutes (or put a limit on the price). Market makers have been known to open trading in less liquid shares with a much wider spread (the difference between the price you get if you sell and the price you pay if you buy) than you would get later in in the day.

When I used to focus heavily on small oil companies in the early and mid 2000s, you would regularly see complaints online from people who had put sales overnight with instructions to deal as soon as the market opened. The price these people got was often much less than they were expecting, but within the hour the bid price had increased to where they would expect it to be. Market makers didn't want to be have to deal with large orders at the opening in a relatively illiquid share, unless it was at an advantageous price for them, so they widened their spreads at opening and narrowed them as the day progressed (before widening them again shortly before market close).

I remember one case where the spread on a small oil company was (in theory) 25p bid and 28p offer; the sale at just after 8am went through at 20p. About an hour later the spread was back to 25p bid and 28p offer.

Thank you
Thats excactly the thing I was hoping for, I hadn't considered that and its given food for thought and another line of research

[Dod101]

I think the biggest risk if you are selling outside of an ISA and buying the same share inside is the market moving against you. Trying to time things as you are may work sometimes but is just as likely to be against you.

The easiest way is if for example you held both your taxable account and the ISA with say Interactive Investor, they will do the selling and rebuying for you at very low cost, no hassle and only a very modest market risk because the transactions are co ordinated for the same day.

Dod

[Paul2566]

I think the biggest risk if you are selling outside of an ISA and buying the same share inside is the market moving against you. Trying to time things as you are may work sometimes but is just as likely to be against you.

The easiest way is if for example you held both your taxable account and the ISA with say Interactive Investor, they will do the selling and rebuying for you at very low cost, no hassle and only a very modest market risk because the transactions are co ordinated for the same day.

Dod

Dod101

Thank you for that. I have only really started looking at this today and haven't yet spoken with my broker (Halifax bank), so hopefully they can provide the service you mentioned. It may be I'm trying to deal with a problem that does not exist, but I have never had to worry about this before so am happier asking questions and doing research before making a plan.
I'm going to begin moving stocks after April 6th, using both my ISA and my wifes ISA, which will give me £40k of wriggle room. But even then its going to take a few years.

[Dod101]

I think the biggest risk if you are selling outside of an ISA and buying the same share inside is the market moving against you. Trying to time things as you are may work sometimes but is just as likely to be against you.

The easiest way is if for example you held both your taxable account and the ISA with say Interactive Investor, they will do the selling and rebuying for you at very low cost, no hassle and only a very modest market risk because the transactions are co ordinated for the same day.

Dod

Dod101

Thank you for that. I have only really started looking at this today and haven't yet spoken with my broker (Halifax bank), so hopefully they can provide the service you mentioned. It may be I'm trying to deal with a problem that does not exist, but I have never had to worry about this before so am happier asking questions and doing research before making a plan.
I'm going to begin moving stocks after April 6th, using both my ISA and my wifes ISA, which will give me £40k of wriggle room. But even then its going to take a few years.

I too have been doing this for years. I think I am stopping now though although I still have a number of certificated shares which I will keep as certificates for as long as I am able. (Some authority is organising for certificates to be dematerialised at some point, but they have been saying that for years) That is to me by far the securest way of holding shares and the dividends from these are not much more than the dividend allowance.

I have been transferring shares into tax free holdings for well over 25 years. In the old days it was only a very modest amount if I remember correctly and then I had to sell outside of any platform and then buy within the platform. That could take a week so the risk of the market moving one way or the other was high.

Nowadays it is so much easier. I understand well the Op's desire but I rather think it is really not worth the effort of trying to time things except as I have said to safeguard against the market moving against you.

Dod

[mc2fool]

First of all, can you please explain to us all what BED stands for?

I think we all now understand that it's your normal, unsheltered, dealing account, but as you can see from the first couple of replies it's not an acronym that's familiar to folks here, so can you please expand it out to what it stands for.

If you actually mean "bed" (rather than BED), as in "bed and ISA", then that's an action, not the label of an account, and sorry if this sounds pedantic, but when coming to an online forum for help and advice it's really best if you use the lingo of the forum; it helps avoid the sort of puzzlement in the first couple of replies.

Now, on your bed & ISAing ex-dividend strategy ... do I understand correctly that what you are hoping for is to minimise the price of a stock when you do the bed & ISA, both to have a lower price on the sell for CGT purposes, and to facilitate the bed and ISAing of more shares within the £20K limit?

While that looks good in theory, as, yes indeed, all other things being equal, the price of a stock should drop by the amount of the dividend, in reality all other things are never equal and normal market movements may wipe out, or indeed, exaggerate the supposed drop. It also straps you to a date to do the bed & ISA, when the price may be on a high overall.

I do a little of what you intend, in that when it comes to bed & ISA time I procrastinate a bit waiting for lower prices, but I don't look at ex-dividend dates and I don't get too fussed up if a lower price doesn't come.

I always do my bed & ISAing at the end of the tax year. As doug2500 implied, then you know what your CGT position will be and so can arrange to maximise the use of your CGT allowance, with only a limited time window for any unexpected events to blow it. If you do it at the start of the tax year and maximise the use of your CGT allowance then some corporate action, like a takeover, could blow it, and it'd also put a damper on any other trades you may decide to do later in the year that will breach the CGT allowance.

I start thinking about bed & ISAing mid-March and wait for a day when the market is down to do it. A silly little bit of market timing really, which sometimes works out and sometimes doesn't, but it's an amusing way of choosing the day to do it as any.

Most brokers have a bed & ISA service, Halifax's is described here, although YouInvest has a better general description here. The advantages of calling up Halifax and asking them to do it are that they do the buy and sell at the same time, you only pay one dealing fee and you don't have to wait 2 days to transfer the money (and do the buy 2 days after the sell). Note though that the buy and sell is done at a time of their convenience.

Personally I don't use my brokers' bed & ISA services, as the cost of an extra dealing fee isn't a big deal, and I prefer to have control of the timing and it allows me to "tweak" how much I buy. If you use a bed & ISA service they will sell your £1000 of stock, netting (say) £990 after the dealing fee and then buying £985 of it after stamp duty (and there's bid-offer spread as well of course). I may decide to buy the same number of shares as I sold.

Also like doug2500, I do a temporary dig into instant access savings to put the money into the ISA up front, so I can do the sell and buy at the same time, and not have to wait for the cash from the sell to clear first. I then replenish the savings a few days later, from the sells.

[Bouleversee]

It originates from what was called Bed and Breakfasting, before the days of ISAs, where one sold one day and bought back the next, similarly for tax purposes, but that's as far as my failing memory gets me. No doubt some equally ancient member will be able to elaborate further. There isn't such a thing as a BED account; it's simply your dealing/trading account.

[DrFfybes]

I agree with Scott - it is a zero sum game long term.

You sell XD so you can sell and re-buy perhaps a couple more shares in your ISA, but your're still moving the same amount of cash, and potentially paying tax on the Divi, and you still get hit by the spread. Personally I'm better off transferring cum dividend and avoiding tax on the income. You're doing well if you are knocking the CGT limit on a £20k share transfer (although MrsF's Marlborough Microcap is not too far off triggering that).

If it is with the same broker then certainly HL and Alliance/ii, and others do a 'one instruction' route to sell and rebuy within the ISA, often on the same or consecutive days (ii take a bit longer with funds). If you're selling funds you can specify how much in cash value you sell/transfer, but with shares it has to be a whole number, so you're extremely unlikely to hit £20k exactly, in which case there is a cash top up anyway.

As others say - the best route to minimise market movements is to add cash to the ISA, then log in and sell and buy at the same time, then take the cash back from the dealing account, OK if you happen to have £20k to play with.

Paul

[doug2500]

You don't have to it all at once of course. If you have 5k you can do it in 4 tranches over a month. With iweb it would cost you an extra £30 (extra 6 trades) but the first year will recoup that in tax saved and you could easily lose hundreds being out of the market for 5 days.

Another unimportant bug bear of mine is when you have a nice 1000 share holding and then after B & ISA you have 997.

[Lootman]

I always do my bed & ISAing at the end of the tax year. As doug2500 implied, then you know what your CGT position will be and so can arrange to maximise the use of your CGT allowance, with only a limited time window for any unexpected events to blow it. If you do it at the start of the tax year and maximise the use of your CGT allowance then some corporate action, like a takeover, could blow it, and it'd also put a damper on any other trades you may decide to do later in the year that will breach the CGT allowance.

That depends on how determined you are to avoid ever paying ANY capital gains tax. So if that is an important criterion to you then you should wait until the last few days of the tax year, certainly.

However paying some CGT is not the end of the world. The rates are either 10% or 20% (for shares) and one might take the view that paying those rates isn't so bad. And there is a tax benefit to subscribing to an iSA at the start of a tax year rather than at the end, in that you are sheltering each subscription for almost an extra year.

The larger your taxable portfolio is, the more willing you might be to pay some CGT each year, if only out of fear that CGT rates may increase in the future. In fact there has been discussion by politicians of taxing capital gains at the same rate as your marginal income tax rate. That idea was quashed for now, thankfully, but I would not rule it out for the future.

[tjh290633]

tjh290633

Ah thanks for that, it was confusing me a little, I wasn't sure.

So if I understand you correctly I could sell the stock at say 08001hrs on the exdiv day and still get the dividend.

Which would potentially allow me to take advantage of any drop in the SP post exdiv, assuming I have funds in the ISA account to immediately buy back into the stock.

You could, but the problem is that the dividend goes to the account which you are leaving. If you want to reinvest the dividend it is better to do the transaction a few days in advance of XD, so that the dividend ends up in the correct account.

As others have pointed out, your broker may be able to do it in one transaction at lower cost.

TJH

[Dod101]

The benefits of having most of your portfolio in a tax sheltered environment are so great that saving a fraction of cost in getting there is pretty well insignificant. No tax on dividends is important but no tax or need even for consideration of CGT is to me the great advantage.

And the tax advantages are for life, it would seem. Wunderbar!

Dod