The number of savers who have become ISA millionaires in the UK has reached a record high, smashing through the 5,000 mark for the first time, new data reveals.
An Freedom of Information request submitted by the money platform Plum uncovered that HMRC recorded 5,070 individuals with ISA pots valued at over £1 million at the end of the 2022-23 tax year. This figure represents a five per cent increase on the previous year, suggesting the total is likely even higher today.
The Path to a Seven-Figure ISA
Every UK adult receives an annual £20,000 tax-free savings allowance to put into an ISA. While it is technically possible to reach the million-pound milestone by saving cash alone, experts warn that inflation would likely erode its real value over the long term.
The most successful investors are those who use a stocks and shares ISA. These accounts, which typically yield higher returns over time, have proven to be the engine for serious wealth creation. In a stunning demonstration of their potential, the latest HMRC data shows that 50 investors now have ISA portfolios exceeding £4 million.
For most people, maxing out the full £20,000 allowance every year is not feasible. However, this does not put significant wealth accumulation out of reach. The key lies in understanding the power of compound interest.
How Consistency Beats Large Lump Sums
By being consistent with contributions and achieving average market returns over a long period, it is reasonable to expect an investor could hit the £1 million mark before retirement, provided they start early enough.
Consider this example: a person saving £300 every month into a stocks and shares ISA that achieves a 7 per cent annual growth rate would amass a pot of approximately £750,000 after 40 years.
Another strategy involves gradually increasing contributions. If a 30-year-old started by saving £300 a month and increased their payments by ten per cent each year, they would have over £1.2 million in their investment account by age 60, again assuming a 7 per cent annual return.
This growth rate is not merely theoretical. The MSCI World Index, a common benchmark tracking 1,500 global companies, has returned more than 7 per cent annually over the past 25 years.
Political Changes and Future Prospects
The landscape for ISAs may be set to change. It is widely expected that Chancellor Rachel Reeves will announce a cut to the annual ISA allowance, potentially reducing it from £20,000 down to £12,000 in the upcoming Budget.
This move is seen as part of a broader push to encourage more Britons to invest their money rather than leaving it in traditional savings accounts. Rajan Lakhani from Plum noted that aside from a single dip in 2020 at the onset of the Covid-19 pandemic, the long-term trajectory for ISA millionaire numbers has been one of continued growth.
With pension contributions also likely facing reforms, ISAs could become an even more crucial vehicle for individuals seeking to build wealth efficiently and shield it from tax penalties. The number of ISA millionaires is expected to grow at a faster rate in the coming years, as those who contribute consistently see their gains accelerate over time.
