ISAs, Pensions & Tax-Free Wrappers

Key facts

Gains on investments held inside an ISA are completely exempt from CGT.
Gains within registered pension schemes (SIPPs, personal pensions, workplace pensions) are also CGT-free.
The annual ISA allowance for 2025/26 is £20,000 across all ISA types.
Gains are only exempt while the investment remains inside the wrapper — withdrawing assets into a taxable account removes the protection.
Venture Capital Trusts (VCTs) purchased as new issues are also exempt from CGT on disposal.

Why Tax-Free Wrappers Matter

In the 2025/26 tax year, the Annual Exempt Amount for CGT stands at just £3,000. For investors with growing portfolios, gains can quickly exceed this threshold and attract CGT at 18% or 24%. Tax-free wrappers — principally ISAs and pensions — allow you to shelter investments from CGT entirely, making them one of the most effective tax-planning tools available.^[3]

ISAs: Complete CGT Exemption

Individual Savings Accounts (ISAs) provide a tax-free environment for both income and capital gains. There are several types of ISA, all of which share the CGT exemption:^[1]

ISA Type	What You Can Hold	CGT Exempt?
Cash ISA	Cash deposits	Yes (no gains to tax)
Stocks & Shares ISA	Shares, funds, bonds, ETFs	Yes
Innovative Finance ISA	Peer-to-peer loans	Yes
Lifetime ISA	Cash or stocks & shares	Yes

Annual ISA Allowance

The total amount you can pay into ISAs each tax year is £20,000 (2025/26). This is a combined limit across all ISA types. Within this, the Lifetime ISA has a sub-limit of £4,000 per year.^[1]

Tip: The ISA allowance is “use it or lose it” — you cannot carry unused allowance forward to future years. Maximising your ISA contributions each year builds a growing pot of permanently tax-free investments.

Key ISA Rules for CGT

All gains realised within the ISA are completely exempt from CGT
Dividends and interest within the ISA are also tax-free
You do not need to report ISA gains on your Self Assessment return
If you withdraw investments from the ISA into a taxable account, future gains on those investments are no longer exempt
Flexible ISAs allow you to withdraw and replace money in the same tax year without using your allowance

The Bed and ISA Strategy

Because you cannot directly transfer existing shares from a taxable account into an ISA, investors use a strategy known as Bed and ISA:^[1]

Sell shares held in your taxable (general) account
Repurchase the same shares within your Stocks & Shares ISA
The sale is a CGT disposal — any gain is taxable, but you can use your £3,000 AEA
Future growth within the ISA is completely tax-free

Important: The 30-day share matching rule does not apply when the repurchase is made within an ISA (or pension). This means the disposal in your taxable account is matched against your section 104 pool as intended, and the ISA acquisition starts a fresh holding within the wrapper.

Worked Example: Bed and ISA

David holds 2,000 shares in FundCo plc in his taxable account. His section 104 pool cost is £10,000 (£5.00 per share). The current market price is £7.00 per share.

He sells 2,000 shares for £14,000 and immediately buys 2,000 shares at £7.00 within his ISA (cost £14,000, within his £20,000 ISA allowance):

Taxable Account Disposal	Amount
Sale proceeds	£14,000
Less: pool cost	−£10,000
Gain	£4,000
Less: Annual Exempt Amount	−£3,000
Taxable gain	£1,000
CGT at 18% (basic rate)	£180

David pays £180 in CGT now, but all future gains on the £14,000 of shares in his ISA are permanently tax-free. If those shares double to £28,000, the £14,000 gain within the ISA attracts no CGT at all.

Pensions: CGT-Free Growth

Registered pension schemes — including Self-Invested Personal Pensions (SIPPs), personal pensions, and workplace pensions — provide CGT-exempt growth on the investments held within them.^[2]

How Pensions Shelter Gains

All capital gains within the pension fund are exempt from CGT
You can buy, sell, and switch investments within the pension without triggering any CGT
Contributions receive income tax relief (effectively a government top-up)
25% of the pension can normally be withdrawn as a tax-free lump sum from age 55 (rising to 57 from April 2028)
The remaining 75% is taxed as income when withdrawn

Feature	ISA	Pension
Annual contribution limit	£20,000	£60,000 (annual allowance)
Tax relief on contributions	No	Yes (at marginal rate)
CGT on gains within wrapper	Exempt	Exempt
Income tax on gains within wrapper	Exempt	Exempt
Tax on withdrawal	None	75% taxed as income
Access	Any time	From age 55 (57 from 2028)
Inheritance	Part of estate	Normally outside estate for IHT

Bed and Pension

Similar to Bed and ISA, you can sell investments in a taxable account and contribute the proceeds to your pension. The sale triggers a CGT disposal, but you receive income tax relief on the pension contribution (20%, 40%, or 45% depending on your marginal rate), which may more than offset any CGT due.

Venture Capital Trusts (VCTs)

VCTs are listed companies that invest in small, unquoted trading companies. Shares in VCTs purchased as new issues (not on the secondary market) qualify for:^[4]

30% income tax relief on investments up to £200,000 per year (must hold for 5 years)
CGT exemption on disposal of VCT shares (regardless of holding period)
Tax-free dividends from the VCT

Shares bought on the secondary market do not qualify for income tax relief but are still CGT-exempt.

Note: Unlike EIS shares, VCT shares are CGT-exempt even if you have not claimed income tax relief on them. However, losses on VCT shares are not allowable for CGT purposes — you cannot claim a capital loss on a CGT-exempt asset.

Planning Tips

Maximise your ISA each year: £20,000 per year compounds tax-free. Over 20 years of ISA investing, the CGT savings can be substantial.
Use Bed and ISA strategically: Transfer taxable holdings into your ISA up to the annual limit, using your £3,000 AEA to cover gains.
Pension contributions: If you are a higher or additional rate taxpayer, pension contributions attract 40% or 45% income tax relief, making the pension wrapper even more powerful than an ISA for long-term savings.
Couples: Both spouses or civil partners have their own ISA allowance (£20,000 each) and AEA (£3,000 each). Transferring assets between spouses is CGT-free and can help utilise both allowances.
Diversify wrappers: ISAs, pensions, and VCTs each have different access rules and tax treatments. Using a mix of wrappers gives flexibility in retirement.

Frequently Asked Questions

Do I pay CGT on investments in my ISA?

No. All gains on investments held within an ISA — whether a Stocks & Shares ISA, Cash ISA, or Innovative Finance ISA — are completely exempt from CGT. You do not need to report ISA gains on your tax return.

Are pension fund gains taxable?

No. Gains on investments within a registered pension scheme (including SIPPs and workplace pensions) are exempt from CGT. However, when you eventually withdraw money from your pension, 75% of the withdrawal is taxed as income (the first 25% is normally tax-free).

What is Bed and ISA?

Bed and ISA is a strategy where you sell investments held in a taxable account and immediately repurchase the same investments within your ISA. This crystallises a gain (or loss) for CGT purposes and shelters the investment from future tax. The 30-day share matching rule does not apply because the repurchase is inside an ISA.

Can I transfer existing shares into my ISA?

You cannot directly transfer shares into an ISA — you must sell them first, then use the cash proceeds to buy the same shares within the ISA. This is the Bed and ISA strategy. The sale is a disposal for CGT purposes and may trigger a gain or loss.

Sources

Individual Savings Accounts (ISAs) — GOV.UK
Tax on your private pension contributions — GOV.UK
Capital Gains Manual: CG14200 – Exemptions and reliefs — HMRC
Venture Capital Trusts: tax relief — GOV.UK