Bed and ISA-A no brainer?

Yes if you have spare ISA allowance it is nearly always a good idea to use it to hold shares that you own and want to continue to hold. It means you never need to worry about paying tax on dividends, interest or property income distributions regardless of what happens to personal allowances and will never suffer any CGT on any gains made in the ISA. Even if you don't expect to pay tax because the gains won't be big enough, it is handy not to have to keep records to prove it.

For shares you obtain from a maturing SAYE scheme or other employee plan, you have a limited window of 90 days to put the shares directly into an ISA. https://www.gov.uk/tax-employee-share-schemes/transferring-your-shares-to-an-isa

In other words you do not need to 'bed and ISA' them by selling, making a gain or loss, and moving the cash into an ISA to buy them back. You can put them directly into an ISA in that limited circumstance in that limited period of time, which means you have not sold outside the ISA and there is no gain and can be no tax. And once they are inside the ISA, you can sell tax free because there are no UK taxes inside an ISA.

However, if you have shares you acquired by SAYE ages ago which you didn't bother to put into an ISA in that limited window, they are treated just like any other shares that you had acquired by any 'normal' method. In other words you can sell them for cash, move the money to an ISA and buy them back again inside the ISA if you still want them (the process known as 'bed and ISA'). If you do that, and the shares are worth a lot more than you paid for them, the selling of the shares to get cash to fund the ISA would result in a capital gain, and there may be capital gains tax to pay depending on the size of the gain.

For example if you sell £20,000 of shares to fund your annual ISA allowance and you had originally paid £8,000 for those shares, you have made a £12,000 gain. The annual exemption for 2017/18 is £11,300 so there would be £700 of gain taxable at 10 or 20% depending if a basic or high rate taxpayer. (https://www.gov.uk/government/publications/rates-and-allowances-capital-gains-tax/capital-gains-tax-rates-and-annual-tax-free-allowances#tax-free-allowances-for-capital-gains-tax)

To avoid paying the taxes you might prefer to only sell a smaller amount of the shares this year (e.g. sell £18800 of the shares that were bought for £7520, making only an £11280 gain and leave the last £1200 unsold until the next tax year. But it would still be worthwhile doing that, and moving most of the shares into your ISA, to avoid future taxes on future growth.

A reason *not* to use your ISA allowance at the start of a tax year to bed-and-isa your existing shares would be if you have another maturing shares scheme coming up later this tax year with a massive embedded capital gain in it. The previously-mentioned exception that allows you to move maturing employee schemes direct into an ISA without any calculation of gains taxes whatsoever, might allow you avoid more total tax by keeping some of you ISA allowance available for that process. It will depend on the amounts involved.

If not bed-and-ISA there is always bed-and-SIPP or bed-and-trustworthy-spouse or bed-and-breakfast-31-days-later.

Yes that link looks like it gives all the details you need, your ISA manager can sort it if you give them the details but they will need that evidence of you exercising your rights on the scheme for x number of shares on y date, rather than you just telling them. The amount you paid is irrelevant, it is the value of shares now that matters in terms of consuming the ISA subscription allowance.

It's pretty much a no brainer to stick maturing share scheme shares into an ISA unless you are going to cash them in right away and want to spend the resulting money, in which case you could just sell them outside the ISA if the tax isn't too much and preserve your ISA allowance for 'real' investments you might like to make later in the year.

- edit
As you found in that link, the difference between bed and ISA and sticking them directly into an ISA, is that with bed and ISA your shares are sold to generate cash to fund the ISA, which creates a CGT event of a gain or loss (either of which might be desirable, depending on personal circumstances) ; while transferring the shares directly into an ISA without selling, under the special 90 day exception, does not involve a sale or a CGT event.

In both 'bed and ISA' and 'transfer existing employee shares into ISA', the process is painless in terms of giving the shares to a broker and having him handle it, but the direct transfer has a different CGT outcome and also saves any transaction costs such as broker fees and stamp duties for selling and re-buying.

It doesn't matter how much is already in the ISA - your maximum subscription (=additional money) this financial year is £20K. If you want to stick £30K in, you can do £20K this tax year, and the remaining £10K will have to wait until next financial year.

C_Mababejive wrote: »

...Would the value of the shares to be transferred represent a new ISA subscription?

Yes, £20k of transfers in would use up all of this year's £20k subscription limit.
It is a subscription other than in cash, but it's still a subscription

For example

A person has £40k in a stocks and shares isa in cash.

The current market value of the SAYE shares to be transferred is £30k.

I believe this years ISA limit is £20,000

I'm guessing that only £20k worth of the shares could be directly tranferred into the S & S ISA and that the other £10k would have to be bed and ISA'd into the ISA?

Yes, you can contribute £20k worth of saye shares into the ISA leaving you with £0 remaining ISA subscription allowance ; then you could sell the other £10k shares and buy them back inside the ISA five minutes later (or five minutes earlier, for that matter) using £10k of the spare £40k cash that was already sitting in your S&S ISA.

What you couldn't do after using up your ISA subscription allowance on the £20k SAYE shares is sell the other £10k shares, move that £10k of cash proceeds into the LISA, and then buy back the £10k shares with the new money you just moved into the ISA. Because then you'd have made £30k of subscriptions into the ISA in one tax year, which is more than the allowance.

Does that sound correct and is that the only mechanism by which they can transfer other than bed and ISA for the lot which of course is not the desireable method?

The only way they can "transfer" is to move them in from an approved scheme within the 90 days (within the annual ISA subscription limit) so they do literally "transfer" ; or, sell them outside the ISA and buy them back inside the ISA with cash from whatever source you like (making sure not to go over the subscription limit).