The little-known investment strategy wealthy savers are using to avoid Reeves's tax raid
The number of investors using the 'Bed and Isa' strategy soared last year as they sought to avoid Labour's capital gains tax raid.
Stockbroker Hargreaves Landsdown said the amount of their clients deploying the tactic had increased by 59pc compared to the previous tax year.
This follows Rachel Reeves's decision to raise capital gains tax rates on stocks and shares from 10pc to 18pc for basic rate taxpayers and from 20pc to 24pc for higher and additional rate taxpayers in last year's Budget.
The Bed and Isa strategy involves selling investments held outside of a tax wrapper and buying back the same holdings inside an Individual Savings Account (Isa) to shield future investment growth from capital gains tax and dividend tax.
Sarah Coles, of Hargreaves Lansdown, said: 'There has been a jump in Bed and Isa this tax year, as higher capital gains tax rates and miserably low allowances make the move even more rewarding.'
However, Ms Coles said investors should 'take care' not to exceed their capital gains tax annual allowance. Wealthier investors could trigger a charge if they sell up and their profits for the year exceed the £3,000 tax-free limit.
That said, the costs could still be worth the benefits of tax-free growth over the long term.
The platform Interactive Investor reported a record-breaking summer for Bed and Isa transactions last year ahead of the capital gains tax rise in October.
This followed the previous government's decision to slash the capital gains tax allowance from £12,300 down £3,000.
The combined changes mean a higher earner sitting on investment gains of £4,000 would now face a £240 charge, whereas in 2022-23 there would have been no tax to pay.
On top of this, the Conservatives cut the dividend allowance from £2,000 to £500. This has cost a higher-rate taxpayer earning £2,000 a year in dividends about £500 in tax.
Capital gains tax revenue is expected to double between 2023-24 and 2029-30 from £15bn to £31bn.
The Office for Budget Responsibility predicts the capital gains tax rises announced last year and the crackdown on non-doms will account for £1bn of this 2029-30 tax take.
Investors have until the end of the tax year in April to make the most of their tax-free allowances. Up to £20,000 can be stashed into Isas each year with no tax due on the growth or income.
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It's amazing how things change. Just a few months ago Rachel Reeves told us the financial situation was so grim she had no choice but to take the winter fuel payment from all but the poorest pensioners. And now, thanks to Labour, it's all going so well she can afford to give it back. That was, of course, a lie. But it wasn't the big lie. No, the big lie was that the spending review bore any relation to what we will actually spend. The traditional recipe for political success is simple: scrimp, then splurge. Get the pain out of the way after the election, so you can splash out before the next one. • Jobs market is flashing a warning sign to Rachel Reeves That's not the approach Reeves took. She wanted to show she was ending austerity (such as it was). But the finances were desperately tight. Her solution, apart from raising taxes, was to frontload her spending increases and hope something turned up. 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From the perspective of the Labour Party, most of those working in public services and her own electoral prospects, Reeves isn't spending nearly enough. But from another perspective, the chancellor is spending far, far too much. Public spending is running at 44 per cent of GDP, a historic high. Taxes, too, are historically high, and universally expected to go higher. Not only have we been spending like crazy, not least because of the pandemic, but we've been spending money we don't have — resulting in an annual bill of more than £100 billion just to cover the interest on our debts. These numbers can be hard to put into context. So our team at the Centre for Policy Studies think tank has come up with a different way of looking at it. We estimate that we are now spending £23,757 for every adult in this country: roughly two thirds of the average full-time salary of £37,500. That includes £3,807 on health, £5,817 on welfare and pensions and a shocking £1,955 for that debt bill. 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That's before even mentioning the NHS. So here are a couple of heretical thoughts. The first is that rather than guaranteeing the level of any individual benefit, we should think in terms of total spend. Let's say we decide that we can only afford to devote 1.5 per cent of GDP to a particular benefit. If more people claim, the totals go down. If people want more cash, they either have to dob in the fraudsters or accept the kinds of policy likely to swell GDP. A gentler version would be to keep benefits from falling, but ensure that they increase only when we can actually afford it. Revolutionary, I know. The second idea is more fundamental: to accept that government cannot actually move the economic needle. If you were listening to the spending review, you would have heard pledge after pledge: billions spent on this, billions on that. But that is not how you get the economy growing. You do that by creating the conditions for individuals and businesses to boost it for you. This may sound like Thatcherite dogma. But it's simple maths. Investment in the UK is roughly 18 per cent of GDP. But the state is responsible for perhaps a sixth of that. Hence Reeves's talk of 'co-investment': using small amounts of state funding to leverage much larger private sums. Or let's look at affordable housing, one of the few areas that did get some cash at the spending review. The government is promising an extra £39 billion over ten years. That's useful. But housebuilders knocked up £46 billion in private sector housing in just the past year — a pretty slow year, at point is that even small increases, or falls, in private sector activity have a far larger impact on the economy, and balance sheet, than the endless initiatives that pour forth from government. Which is precisely why Reeves's jobs tax was so damaging. Generating those increases, or falls, often isn't about money, but common sense. On housebuilding, for example, our system is based on local plans set out by councils. But loads of councils don't have plans in place. And Labour has embarked on a massive local government reorganisation that will delay their publication still further, dooming any hope of hitting its housing targets. It may be anathema to many on the Labour benches, but if the government is to have any hope of avoiding tax rises not just this autumn but for years to come, it needs to do what it finds hardest: clear the obstacles and let the private sector get on with it. The temptation, instead, will be to hammer work, wealth and business one more time. Which will of course make the task facing the chancellor even harder.
