• 26th April 2016

    Investment Management

    You could become an ISA millionaire in 23 years

    Investing your ISA in the stock market could make you a millionaire in 23 years, calculations from Brewin Dolphin show1.

    Putting your ISA allowance into share-based investments each tax year could produce a £1m nest egg by 20391 – according to the wealth manager.

    Under current ISA rules, the returns would also be tax free, with no income tax or capital gains tax (CGT) liability.

    The analysis follows the Budget announcement that the annual ISA allowance will be significantly increased to £20,000 in the 2017/182 tax year, up from £15,240 currently.

    Ammo Kambo, divisional director and chartered financial planner at Brewin Dolphin, said: “The compounding effect of regular investing over the long term using ISA allowances should not be underestimated.

    “As well as the potential to accumulate life-changing sums, crucially this wealth is sheltered from income and capital gains taxes.”

    Investment returns of 5% a year (income and growth combined) could produce a total ISA fund of £1,012,307 by 2039. Of this total, £451,087 would be investment profit, on overall contributions of £561,2201.

    The projection does not take into account inflation, which has the effect of reducing the real value of your investment. In practice, the investment returns could also be more or less than in this example.

    Cash is not king

    Calculations from Brewin Dolphin show how keeping your ISA savings in cash over the long term could be much less profitable.

    For example, a saver putting their allowance into a cash ISA each tax year and earning an interest rate of 2% could accumulate a tax-free sum of £704,263 after 23 years1.

    Of this total, the overall interest earned would be £143,043 – less than a third of the profit in the stock market ISA example1.

    To amass £1m from investing in cash ISAs could take 29 years – an extra six years compared to the stock market ISA example - and require total contributions of £756,2641.

    Brewin Dolphin’s Kambo said: “Investing in the stock market should produce better returns over the long term. It’s also worth remembering that you can transfer ISA holdings from cash into stocks and shares - and vice versa. If you already have cash ISAs it could make sense to transfer them for potentially better stock market returns.“

    However, unlike cash ISAs the value of investments in stock market ISAs can go down and you may get back less than you invested.

    All the above projections assume an investor uses their full ISA allowance each tax year (£15,240 currently and £20,000 in 2017/18)1, with the contribution limit increased by 2% annually thereafter to represent inflation linking.

    How your ISA could grow

    Tax year ISA subscription* Projected stock market ISA value** Projected cash ISA value*** 
    2016/2017 £15,240 £16,002 £15,545
    2017/2018 £20,000 £37,802 £36,256
    2018/2019 £20,400 £61,112 £57,789
    2019/2020 £20,808 £86,016 £80,169
    2020/2021 £21,224 £112,602 £103,421
    2021/2022 £21,649 £140,964 £127,571
    2022/2023 £22,082 £171,197 £152,645
    2023/2024 £22,523 £203,407 £178,672
    2024/2025 £22,974 £237,699 £205,679
    2025/2026 £23,433  £274,189 £233,694
    2026/2027 £23,902 £312,996 £262,748
    2027/2028 £24,380 £354,244 £292,870
    2028/2029 £24,867 £398,067 £324,093
    2029/2030 £25,365 £444,604 £356,447
    2030/2031 £25,872 £494,000 £389,965
    2031/2032 £26,390 £546,409 £424,682
    2032/2033 £26,917 £601,993 £460,631
    2033/2034 £27,456 £660,921 £497,849
    2034/2035 £28,005 £723,372 £536,370
    2035/2036 £28,565 £789,534 £576,234
    2036/2037 £29,136 £859,603 £617,478 
    2037/2038  £29,719  £933,788  £660,141 
    2038/2039  £30,313  £1,012,307  £704,263 
    2039/2040  £30,920  £1,095,388  £749,886 
    2040/2041  £31,538  £1,183,272  £797,053 
    2041/2042  £32,169  £1,276,213  £845,806 
    2042/2043  £32,812  £1,374,476  £896,190 
    2043/2044 £33,468  £1,478,342  £948,252 
    2044/2045  £34,138  £1,588,103  £1,002,037 

    1  Source: Brewin Dolphin data
    2  Source Treasury Budget 2016 https://www.gov.uk/government/publications/budget-2016-documents/budget-2016 

    *Assumes 2% pa increase after 2017/18
    **Assumes 5% pa investment return
    ***Assumes 2% pa return

    The above figures do not take into account inflation, which has the effect of reducing the real value of your investment.  They are only examples and the actual amounts your investment could be worth at the end of the illustrated periods could be more or less than the amounts shown.

    The value of investments can fall and you may get back less than you invested.

    No investment is suitable in all cases and if you have any doubts as to an investment's suitability then you should contact us.

    Please note that this document was prepared as a general guide only and does not constitute tax or legal advice. While we believe it to be correct at the time of writing, Brewin Dolphin is not a tax adviser and tax law is subject to frequent change.  Tax treatment depends on your individual circumstances; therefore you should not rely on this information without seeking professional advice from a qualified tax adviser.

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