How do I switch my UK portfolio from active funds to passive?

Inside an ISA or SIPP, switch immediately — no tax cost. Sell all active funds, buy a global tracker ETF (VWRL, IWDA or HMWO). Inside a GIA, phase the migration over 2-4 years using the £3,000 CGT annual exempt amount each year. Use bed-and-ISA to gradually move holdings from GIA into ISA wrapper at the same time.

Do active funds ever beat trackers?

Some do, but predicting which ones in advance is essentially impossible. The S&P SPIVA UK 2024 data shows 83% of UK active equity funds underperformed their benchmark over 10 years. Even the funds that outperform during one decade often underperform in the next. The simplest evidence-based approach is to capture market returns at the lowest possible cost via index trackers.

What is the cheapest UK global equity tracker?

HMWO (HSBC MSCI World) at 0.15% OCF is the cheapest developed-markets-only global tracker. VHVG (Vanguard FTSE Developed World) at 0.12% is comparable. For developed + emerging markets coverage, VWRL (Vanguard FTSE All-World) at 0.22% is the most popular pick. The OCF difference between cheapest and second-cheapest is small — pick based on coverage you want, not the last 0.05%.

How to switch from active to passive investing

Last reviewed by the UK Tax Drag editorial team · 12 May 2026 · How we review · Next review due 12 May 2027 · See what changed · Report an error

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To switch from active to passive UK funds: inside an ISA or pension, switch freely — no tax cost. Inside a GIA, plan the migration over 2-4 years using the £3,000 CGT annual exempt amount each year. Sequence: sell the worst-performing or highest-fee active funds first; replace with global tracker ETF (VWRL, IWDA, HMWO) at 0.15-0.22% OCF. Use "bed-and-ISA" to migrate GIA holdings into ISA gradually. The full migration typically takes 1-3 years for a meaningful GIA portfolio; ISA migration can be done in a single weekend.

Why switch at all — the maths

Active funds aim to beat the market through manager skill. After fees, most fail. The S&P SPIVA UK Scorecard 2024 found:

Over 10 years, 83% of UK equity funds underperformed their benchmark
Over 5 years, 71% underperformed
Survivor bias means the actual figures are worse — funds that closed during the period aren't included

The fee differential is large enough to overwhelm any skill advantage on average:

Fund type	Typical OCF	£100k after 25 years at 7% gross return
UK active equity fund	0.85%	~£443,000
UK index tracker (VWRL)	0.22%	~£513,000
Ultra-cheap tracker (HMWO)	0.15%	~£522,000

Difference between active and cheapest tracker: ~£79,000 of compounded wealth on a single £100k starting amount over 25 years. Larger portfolios scale proportionally.

The tax-wrapper rule

Wrapper	Selling active funds generates	Migration approach
ISA	No tax	Switch immediately, single day if you like
SIPP / pension	No tax	Switch immediately
GIA / taxable account	CGT above £3,000 AEA	Migrate over 2-4 years using AEA

For ISA and SIPP holders, this is simple: spend a Saturday afternoon, sell all the active funds, buy a global tracker ETF, done. For GIA holders, the migration needs phasing.

GIA migration — the phased approach

Step 1: Calculate unrealised gains on each holdingFor each active fund: current value minus cost basis (your purchase price + any reinvested dividends) = unrealised gain. This is the CGT exposure if you sold today.

Step 2: Identify the £3,000 AEA budgetEach tax year you have £3,000 of tax-free gains. Your goal: realise just under £3,000 of gains each year while migrating to passive.

Step 3: Sell highest-fee, lowest-gain holdings firstPrioritise selling: (a) highest OCF active funds, (b) those with smallest unrealised gains. This minimises CGT while maximising annual fee savings.

Step 4: Use bed-and-ISA where possibleEach tax year, sell £3,000-£23,000 of GIA (depending on gain ratio) and immediately rebuy inside your ISA using the £20,000 annual allowance. Over 5-10 years a large GIA migrates entirely into ISA wrapper — see our bed-and-ISA guide.

Step 5: Replace with index trackerThe proceeds (now sitting in either GIA or ISA) buy global tracker ETF. VWRL, IWDA or HMWO are the standard picks.

Step 6: Repeat annuallyEach April after the new ISA allowance opens, run the same process again. Track progress: typically 2-4 years to migrate a £100k+ GIA without paying any CGT.

What to replace your active funds with

Default replacements

You currently hold	Replace with
UK active equity fund (Fundsmith, Lindsell Train, etc.)	VUKE (UK index) or VWRL (global)
Global active equity fund	VWRL, IWDA or HMWO
Active income fund	VHYL or IUKD (dividend-focused tracker)
Active bond fund	IGLT (UK gilts) or AGGG (global hedged)
Active emerging markets fund	VFEM (Vanguard FTSE Emerging Markets)
Active small-cap fund	ZPRS (SPDR Global Small Cap)
Active "balanced" or "multi-asset" fund	Vanguard LifeStrategy 60/80% Equity (still active in cost terms but cheap)

What to keep (if applicable)

Some active strategies genuinely add value or have no good tracker equivalent:

Investment trusts trading at discount to NAV (when the discount is meaningful)
Specialist sectors with no equivalent ETF (e.g. some private equity ITs)
Property funds (REITs) — but consider switching to a REIT ETF like IUKP for better liquidity

For most retail investors, these niche cases are 10-20% of portfolio max, leaving 80-90% to migrate to passive.

Worked example: £150,000 GIA with 5 active funds

Starting position:

Fundsmith Equity: £60,000 (cost £35,000, gain £25,000), OCF 0.95%
Lindsell Train Global Equity: £40,000 (cost £30,000, gain £10,000), OCF 0.70%
Baillie Gifford American: £25,000 (cost £18,000, gain £7,000), OCF 0.51%
M&G Global Dividend: £15,000 (cost £18,000, loss £3,000), OCF 0.85%
Schroders UK Opportunities: £10,000 (cost £10,000, gain £0), OCF 0.75%
Total: £150,000 / £45,000 unrealised gains

Year 1 plan:

Sell Schroders (£10k, no gain): use £3k AEA elsewhere
Sell M&G (£15k, £3k loss — offset against other gains)
Sell £3k of Baillie Gifford (locks in gain of ~£840 — within AEA)
Total realised: £28,000 of GIA value sold
Bed-and-ISA: rebuy £20,000 of HMWO inside ISA
Remaining £8,000 buys HMWO in GIA
Year 1 CGT: £0

Year 2-4 plan: continue selling against the AEA, gradually exiting Fundsmith and Lindsell Train. By year 4: 100% passive, zero CGT paid, fee load dropped from ~0.80% to 0.18%.

Common migration mistakes

Mistake 1: Selling everything at once in a GIA.A large CGT bill at 24% in one year, when the AEA is only £3,000, is exactly the wrong way to migrate. Phase over multiple tax years.

Mistake 2: Selling the worst-performing fund first emotionally.Counter-intuitively, sell the BEST-performing fund last (it has the largest unrealised gain — biggest CGT exposure). Sell the worst performers first to crystallise losses which offset other gains.

Mistake 3: Buying back the same fund within 30 days in a GIA.The "bed-and-breakfasting" rule blocks you from claiming a loss if you rebuy the same asset within 30 days. Buy a DIFFERENT fund (different tracker) to avoid the rule.

Mistake 4: Switching all the way to a single global tracker.For most people this is fine. For some, the move from a diversified multi-fund portfolio to a single ETF feels uncomfortable. The 3-fund portfolio (equity + bonds + cash) is a fine middle ground.

Mistake 5: Switching during a market panic.Selling at -25% locks in losses. Switching active-to-passive should happen when you have the headspace, not during turmoil. Set the migration timeline before any market stress and stick to it regardless.

Quantify the fee savings

The compound interest calculator can model the fee gap — see how 0.7% of saved OCF compounds into tens of thousands over decades on a typical portfolio.

Open compound interest calculator →

Sources and references

S&P Dow Jones SPIVA UK Scorecard 2024 — active vs benchmark performance data. Fund OCF data from Morningstar UK 2024. CGT 30-day bed-and-breakfasting rule from HMRC Capital Gains Manual.

UK Tax Drag is not authorised by the Financial Conduct Authority and does not provide regulated financial or tax advice — see the content disclaimer for the full position. There are no affiliate links on this page — provider names are mentioned only to illustrate how different providers handle the same procedure.

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How to switch from active to passive investing — UK migration playbook