Britons are racing to pile millions of pounds into ISAs, where gains on savings, stocks and shares are protected from tax, ahead of next week’s Budget.
The rush has helped boost the number of people now sitting on massive nest eggs of more than £1 million, according to new figures.
An analysis by the investment platform InvestEngine found the number of savers with over £1m in tax-free Isas has tripled in three years – rising from 1,030 to 3,180.
At the same time, more than 10,000 savers now have Isas worth more than £750,000, while more than a quarter of a million have over £250,000.
Speculation around the budget has suggested that the Chancellor might seek to cap the maximum amount people can hold in an ISA at £500,000 or the reduce the maximum figure of £20,000 that people can put into an ISA each year.
In a newspaper column in 2016, Rachel Reeves called for the introduction of a £500,000 limit on tax-free Isas – a move that would put an end to so-called “Isa millionaires”.
Fears of the looming tax raid have seen investors flock to stocks and shares Isas, funnelling 156 percent more into these accounts in September than during the same period last year, Isa provider Bestinvest has reported.
Payments into the platform in the first 11 days of October exceeded the amount paid in during the full month of October last year.
Ian Cook, of wealth manager Quilter, said changing Isa rules would hurt aspirational savers.
He told 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 around 22 million savers have an ISA account with the total market value put at £725 billion. Their tax-free perks make them particularly attractive for those who would otherwise be caught out by savings tax or capital gains tax.
Andrew Prosser, head of investments at InvestEngine, said most ISA millionaires have achieved this status by putting their money into investments, rather than simply relying on interest paid on savings held in the accounts.
He said: “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.
“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.”
The average rate of return for a stocks and shares Isa over the past ten years is 9.6 per cent, according to rate scrutineer Moneyfacts. Meanwhile, lower-risk cash Isas have paid average interest of 1.21 per cent.
Mr Prosser said someone who saves the maximum £20,000 a year – £1,667 a month – in a stocks and shares Isa could become a millionaire within 19 years, by 2043, if they achieved the past ten-year average returns. It could take double that time to hit the million pound mark in a cash Isa.
He added: “’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.”
