Ahead of the upcoming Budget, Brits are eagerly investing millions into ISAs—tax-protected savings and investment accounts—as new figures indicate a surge in taxpayers amassing fortunes over £1 million. Data from InvestEngine shows an astounding increase of treble the investors with more than £1m in tax-free ISAs, up from 1,030 to 3,180 over three years.
Concurrently, over 10,000 individuals have ISAs exceeding £750,000, while a quarter-million boast of at least £250,000. Amid budgetary speculation, there’s talk that the Chancellor might impose an ISA holding cap of £500,000 or slash the annual investment limit, currently pegged at £20,000.
The notion is not new; back in a 2016 column, Rachel Reeves advocated for capping ISAs at £500,000 to curb the rise of “Isa millionaires”. This prospect has led to a significant uptick in contributions to stocks and shares ISAs, with Bestinvest reporting a 156 percent September increase year-on-year.
With contributions to the platform in early October outstripping the entire month last year, concern mounts that changes to ISA rules could deter serious savers, as Quilter wealth manager Ian Cook suggests.
He expressed his concerns to the Telegraph: “The decline of defined benefit pensions has put a greater onus on individuals to save for their future. Targeting Isas would remove the incentive to work and earn and save – to provide for yourself. It feels whichever direction you turn, there’s taxation waiting round the corner. You’re taxed on what you earn, what you save, and then VAT when you spend.”
Currently, about 22 million savers in the UK hold an ISA account, collectively valued at £725 billion. The allure of ISAs is partly due to their tax-free status, shielding users from savings and capital gains taxes.
Andrew Prosser, who is at the helm of investments at InvestEngine, commented that the majority of ISA millionaires have seen their fortunes grow as a result of savvy investment, not just by accumulating interest. He shared: “Even someone who has put the maximum in a cash Isa every year since they [Isas] were launched in 1999 would be at around £275,000 – a great sum, but well short of millionaire status.”
He contrasted this with the success found in stocks and shares ISAs, revealing: “In contrast, more than 3,000 people have become millionaires through their stocks and shares Isa, and a further 30,000 have built up more than £500,000 for their futures.”
Data highlighted by Moneyfacts, an industry rate watchdog, demonstrates that over the last decade, the average return on a stocks and shares Isa stands at 9.6 per cent, while the more conservative cash Isas have yielded an average annual interest of 1.21 per cent.
Mr Prosser explained that an individual who manages to save the maximum of £20,000 annually – which equates to £1,667 a month – in a stocks and shares Isa could potentially become a millionaire within 19 years, by 2043, assuming they achieve the average returns seen over the past decade. In contrast, reaching the million-pound milestone in a cash Isa might take twice as long.
He emphasised: “While not everyone will be able to put away this amount of money each year, it shows the importance of thinking long term with investments and the power of compounding. Getting started early each year, even with small amounts, and not leaving investing until the end of the tax year, creates the potential to grow large sums for later in life.”