Number of ISA millionaires jumps to 4,850

(Image credit: Flashpop)

last updated 14 November 2024

The UK now boasts 4,850 ISA millionaires, according to the latest data from HM Revenue & Customs (HMRC).

These ISA savers are sitting on pots worth more than £1 million, as of April 2022, according to a freedom of information (FOI) request by smart money app Plum.

The average ISA millionaire pot is worth £1.35 million, with these savers likely to have their money in stocks and shares.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

The number of ISA millionaires has tripled over the past two years, from 1,480 in April 2020, according to the HMRC figures. This is around 10 times the 450 ISA millionaires recorded in 2016, and a long way since 2003 when Lord Lee of Trafford became one of the first ISA millionaires.

Even more impressively, the top 25 ISA investors are sitting on pots averaging an eye-watering £8,880,000.

ISAs have the advantage of being ring-fenced from the taxman. Investors can pay in up to £20,000 each tax year across cash ISAs, stocks and shares ISAs, lifetime ISAs, and innovative finance ISAs.

Rajan Lakhani from Plum comments: “ISA millionaire wealth continues to grow, even as other savings and investment products lose a little of their shine following recent tax changes.

“A large part of the ISA’s appeal is the flexibility and liquidity it offers investors. In simple terms, you can crystallise your wealth whenever you choose and regardless of age, unlike, for example, pension holdings or buy-to-let properties."

Last month, the chancellor hiked the capital gains tax rates in her Autumn Budget. Basic-rate taxpayers now pay 18% (up from 10%) on the sale of shares and funds that aren't held in an ISA or pension, while the rate for higher earners has increased from 20% to 24%.

How to invest like an ISA millionaire

The news that there are almost 5,000 ISA millionaires will leave some investors wondering how much time, strategy and investment return it takes to hit the million-pound mark.

Lakhani notes: “All ISA millionaires have one thing in common. They built their fortunes through stocks and shares investing and will have made the most of their annual allowances.

"Even in this recent period of elevated interest rates, history shows us that for those putting money aside for the long term who are prepared to embrace a little risk, investing through a stock and shares ISA has provided greater returns."

He adds: “While only a fraction of savers will be able to amass a million pounds in their ISA, investing even small amounts regularly can add up to a significant sum over time. That’s especially the case if you begin your investing journey early."

According to Plum, someone starting from scratch today maxing out the current £20,000 annual allowance into a stocks and shares ISA could reasonably expect to reach millionaires’ row in around 22 years, assuming annualised returns of 7% after fees.

Myron Jobson, senior personal finance analyst at fund supermarket Interactive Investor, says that many of today's ISA millionaires will have started building their nest eggs in personal equity plans (PEPs), the predecessor to ISAs.

The average age of an ISA millionaire on Interactive Investor's platform is 74, compared with an average age of 57 for the overall ISA cohort.

He adds: “This reminds us that long-term wealth creation is about discipline and process. Time in the market, not timing the market and utilising government tax wrappers are a great rule of thumb.”

Why ISAs are so valuable now

ISAs are becoming more valuable for savers and investors due to a raft of tax hikes imposed by the Labour government.

Rachel Reeves's maiden Budget announced an increase to capital gains tax, as well as a stamp duty surcharge for buy-to-let landlords.

Pension pots will also become liable for inheritance tax from April 2027.

Lakhani notes: “While Labour has imposed higher taxes on pension wealth and increased the stamp duty surcharge on landlords buying additional properties, there has been far less tinkering around ISAs, meaning generous rewards with fewer headaches for long-term investors.

“Speculation of a lifetime ISA investment ceiling has so far proved unfounded.”

He also highlights the flexibility of an ISA compared to a pension. For example, while pension investors typically only have the option to withdraw a 25% tax-free lump sum up to a cap of £268,275, and can’t touch their pot until aged 55 (or 57 from 2028), adult ISA investors can draw on their pot whenever they want with no ceiling on tax-free cash.

Ruth is an award-winning financial journalist with more than 15 years' experience of working on national newspapers, websites and specialist magazines.

She is passionate about helping people feel more confident about their finances. She was previously editor of Times Money Mentor, and prior to that was deputy Money editor at The Sunday Times.

A multi-award winning journalist, Ruth started her career on a pensions magazine at the FT Group, and has also worked at Money Observer and Money Advice Service.

Outside of work, she is a mum to two young children, while also serving as a magistrate and an NHS volunteer.