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Becoming an ISA Millionaire

Honest reporting on shorter-term trading activity and ideas
1nvest
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Re: Becoming an ISA Millionaire

#460198

Postby 1nvest » November 22nd, 2021, 10:20 pm

Lootman wrote:Last week my ISA (briefly) passed the £1,000,000 mark. This caused me to look back at this topic from almost exactly 5 years ago where I noted that my ISA at that time was worth half a million.

Given that contributions since then have been £100,000 (5 times £20,000) that assumes an uplift in value of £400,000 due to gains and dividends.

Overall this is not a stellar investment performance. But what it does tell me is that it does not have to be. A fairly mundane investment return can still get you there as long as you contribute as much as you can every year, avoid making withdrawals, and let time do the rest.

Now just hoping that the rules don't change on me.

Congratulations. However as many more surpass that milestone I suspect changing the rules will become increasingly more likely. In 2018 estimates suggest there were around 500 ISA millionaires across three or four of the major providers, once at 5,000 to 10,000 is when I suspect former Budget statements as "ISA dividends continue to remain exempt" may at first see ISA dividends become taxable, only capital gains being exempted. Perhaps followed by exit/withdrawal tax rule changes or maximum values only being exempted (first £250K/whatever - i.e. 10K state pension plus 10K from ISA income, 20K combined being seen as 'generally fair enough').

yorkshirelad1
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Re: Becoming an ISA Millionaire

#460263

Postby yorkshirelad1 » November 23rd, 2021, 10:13 am

Having made as much use as possible of PEPs, Single Company PEPs, TOISA, TESSAs, demutualisation shares (which you could transfer into an ISA becuase some were received for a cost of £0 so didn't affect the annual subscripton limit) and ISAs, it seems me & Ms YL have ISAs (currently held at HL) totalling £6m. A fair chunk of that success is due to a very early suggestion for a certain scottish investment trust (that is well discussed on these hallowed lemony pages), and quietly squirreling away annual allowances (which presupposes the cash is available to do so) each year and leaving it to compound.

I do remember seeing a recent press article (e.g. https://citywire.co.uk/funds-insider/news/the-secrets-of-the-isa-millionaires/a1470332 and others) by HL trumpeting how they had a number of ISA millionaires. I slightly resent being used as a statistic for them to plump up their own image, and more to the point, drawing attention to the number of ISA millionaires, as low-hanging fruit for desperate Chancellors. After all, only rich people have ISAs... (never mind that long-forgotten encouragement of getting people to save by the likes of Nigel Lawson, who started PEPs when he was Chancellor).

I suspect in a few years time it'll be how many £10m ISA holders there are.

To answer the OP: quietly, steadily, patiently would be my advice. Personally, I like boring too, but everything these days has to be sexy, sensationalist, head-line grabbing, Top 10 lists, but I prefer to leave that to others. I'm a tortoise.

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Re: Becoming an ISA Millionaire

#460289

Postby Dod101 » November 23rd, 2021, 12:01 pm

A lot of course depends on whether you withdraw or reinvest the dividends. I have been extracting almost all of my dividends since the beginning but even so am getting very close to a million but so what? After a certain level it is best to keep the numbers down and give it to others when they need it rather than wait until the government has extracted IHT from it and anyway, after a while you begin to lose the housing NRB.

For me this discussion is on the wrong Board because I have certainly not been 'Trading my way to a million'

Dod

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Re: Becoming an ISA Millionaire

#460291

Postby Midsmartin » November 23rd, 2021, 12:24 pm

The number of people with ISAs worth more than £1m will be higher than the figures in that article as it's perfectly possible to have ISAs with multiple providers.. as long as your total contributions are within the limits of course.

AleisterCrowley
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Re: Becoming an ISA Millionaire

#460297

Postby AleisterCrowley » November 23rd, 2021, 12:41 pm

Well I'm nowhere near.
I spent a lot of money on booze, birds and fast cars. The rest I just squandered
(George Best)

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Re: Becoming an ISA Millionaire

#460601

Postby BT63 » November 24th, 2021, 4:01 pm

Midsmartin wrote:The number of people with ISAs worth more than £1m will be higher than the figures in that article as it's perfectly possible to have ISAs with multiple providers.. as long as your total contributions are within the limits of course.


It would be risky to hold such a large amount with one provider.

I spread my investments across several providers to stay below compensation limits and to limit the amount of money which might become trapped due to an unexpected problem.
In the latter case, when my Legal & General investments transferred to Fidelity a few weeks ago, Fidelity didn't like something about it even though I have been with both companies for over 20 years.
As a result, Fidelity have locked my account pending further investigations and paperwork, so all that was with L&G and all that I hold with Fidelity is locked down at the moment.
Unfortunately for Fidelity, due to my account being locked, it meant that this year's ISA contribution and more ended up going to Aviva instead. I also have investment accounts with M&G and HSBC, plus I still hold significant quantities of shares in certificated form along with other assets outside of the broker/banking system.

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Re: Becoming an ISA Millionaire

#460630

Postby Midsmartin » November 24th, 2021, 5:26 pm

Thanks for this prod to move some funds. I have too much in interactive investor after the eqi merger. Frankly I'm a bit scared of what might go wrong trying to transfer part of it!

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Re: Becoming an ISA Millionaire

#477694

Postby anniesdad » February 1st, 2022, 9:07 am

Question for all ISA millionaires (actually there, or seeking to get somewhere near there)
1. Presumably concentrating on maxing out your ISA contribution each year means that you have ‘neglected’ to some extent your pension contributions?
2. On retirement the contributions stop but does the £million (or other large amount) remain in the ISA providing you a tax free income. So the ISA is de facto your pension in all but name meaning your actual pension is somewhat negligible or secondary?
3. If you were starting out again as a young person would you contribute £20k pa into an ISA or a pension?

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Re: Becoming an ISA Millionaire

#477714

Postby ayshfm1 » February 1st, 2022, 9:59 am

I view my ISA as secondary, so I always prioritised my pension over the ISA and indeed have taken cash from the ISA to top up disposable income in order to ensure as much as possible of my earned income goes into the SIPP. I have never targeted being an ISA millionaire and doubt it will ever happen.

On retirement, my ISA will carry on re-investing and I will add whatever cash I don't need. This will get reviewed and effectively mitigates the possibility that the SIPP income doesn't keep pace with my living expenses over time.

The last question is a good one. In my view, ISA should be the priority for those paying basic rate tax, pension becomes priority when higher rate tax is payable. There are other reasons why ISA's are compelling in early life, but the tax arbitrage is the underlying good reason.

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Re: Becoming an ISA Millionaire

#477720

Postby Dod101 » February 1st, 2022, 10:14 am

ayshfm1 wrote:
On retirement, my ISA will carry on re-investing and I will add whatever cash I don't need. This will get reviewed and effectively mitigates the possibility that the SIPP income doesn't keep pace with my living expenses over time.
.


The implication is that you will be drawing an income from the SIPP in preference to the ISA on retirement. That seems strange to me since you will of course have to pay tax on withdrawals from the SIPP but not on withdrawals from the ISA. Furthermore the SIPP can usually be passed on free of IHT on death but the ISA of course forms part of your taxable estate.

I live off my dividends and seldom draw anything from my SIPP. I value the tax free income from the ISA (which incidentally is (or rather they are) getting close to the magic seven figures despite my drawing the income most years since I retired)

Dod

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Re: Becoming an ISA Millionaire

#477721

Postby everhopeful » February 1st, 2022, 10:23 am

anniesdad the answers to your questions are influenced by many factors.
1. This assumes that one's income or employment is such that the ISA or pension has to be an either/or prospect. Many people can accumulate funds in both by virtue of their generous salary or their type of employment (public sector for example).
2. Contributions to ISAs do not stop on retirement if you can afford to continue them and the money held remains tax free and available to generate either tax free income or capital increase via reinvestment of dividends.
3. The decision on whether to invest in ISAs or pensions is difficult if it can only be one or the other. ISAs have no upfront tax relief but are more flexible and tax efficient once accumulated. The great imponderable is what future political interference might do. Pensions have been hit by Lifetime limits and annual uplift limits which did not exist years ago and the tax benefit on contributions could easily be lowered.
Similarly the amount that is allowed to be held tax free in an ISA could be suddenly and drastically reduced. There has been talk of restricting it to £250,000. I consider these changes being applied retrospectively to savings which have been accumulated in the light of the tax situation that existed when the decision on how to save was made to be iniquitous. If possible go for both and with the ISA go for growth by investing in equities.

As I write this in my seventies I am conscious of how very lucky I am to have accumulated a seven figure ISA and a generous inflation linked pension. On the other hand I probably don't have that much longer to enjoy it!

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Re: Becoming an ISA Millionaire

#477826

Postby Bouleversee » February 1st, 2022, 3:39 pm

everhopeful wrote:anniesdad the answers to your questions are influenced by many factors.
1. This assumes that one's income or employment is such that the ISA or pension has to be an either/or prospect. Many people can accumulate funds in both by virtue of their generous salary or their type of employment (public sector for example).
2. Contributions to ISAs do not stop on retirement if you can afford to continue them and the money held remains tax free and available to generate either tax free income or capital increase via reinvestment of dividends.
3. The decision on whether to invest in ISAs or pensions is difficult if it can only be one or the other. ISAs have no upfront tax relief but are more flexible and tax efficient once accumulated. The great imponderable is what future political interference might do. Pensions have been hit by Lifetime limits and annual uplift limits which did not exist years ago and the tax benefit on contributions could easily be lowered.
Similarly the amount that is allowed to be held tax free in an ISA could be suddenly and drastically reduced. There has been talk of restricting it to £250,000. I consider these changes being applied retrospectively to savings which have been accumulated in the light of the tax situation that existed when the decision on how to save was made to be iniquitous. If possible go for both and with the ISA go for growth by investing in equities.

As I write this in my seventies I am conscious of how very lucky I am to have accumulated a seven figure ISA and a generous inflation linked pension. On the other hand I probably don't have that much longer to enjoy it!


Depending on the day/week I check, my ISAs are around 7 figures, too, but I am conscious of the fact that they will be subject to 40% tax when I pop my clogs which may not be too far hence.

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Re: Becoming an ISA Millionaire

#477896

Postby ayshfm1 » February 1st, 2022, 9:12 pm

@Dodd

ISA doesn't and will not generate enough cash in of itself to fund my lifestyle in retirement, but the cash it does throw off can be re-invested and along with the addition of money I don't need it should go onto provide a decent safety net, along with a state pension.

Pension has 25% tax free lump sum and works in concert with the personal tax allowance given it's mostly free money or would have had 40% plus deducted had I taken the cash at the time the arbitrage at the moment seems pretty good.

However a pension is subject to the LTA and assuming I crystallise the value at roughly that LTA then I run the risk at 75 of having a large tax bill when it's revalued. Hence it makes sense in the years prior to 75 to extract as much as is tax efficient as possible, which will likely exceed it's natural yield. In short I expect it to take a battering. But with my ISA in the wings, I have a fall back if that battering turns out to be much worse that expected.

That said assuming I make 75 after the SIPP has been valued it may well indeed make sense to stop taking from it and instead top up state pension from the ISA.

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Re: Becoming an ISA Millionaire

#477897

Postby Lootman » February 1st, 2022, 9:17 pm

Bouleversee wrote:Depending on the day/week I check, my ISAs are around 7 figures, too, but I am conscious of the fact that they will be subject to 40% tax when I pop my clogs which may not be too far hence.

Same here. I was very briefly above a million but shy of it now with the recent market falls.

Still, even if you project a modest 4% ("safe" SWR?) rate of return, that is 40K a year tax free. Will take it.

But as you note, the income tax and CGT saved pales into insignificance compared with the potential 40% hit to the entire value. And so do I give thought to at what point in my life I give up the ISA benefits in favour of being in a position to mitigate IHT - something that is dificult to do with an ISA?

Could this have been the government's cunning plan all along?

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Re: Becoming an ISA Millionaire

#477908

Postby Bouleversee » February 1st, 2022, 10:15 pm

I haven't withdrawn anything from my ISAs because (not having been able to have holidays or much of a social life or spent much on the house or contents for many years) I could live on my state pension inc. SERPS, non-ISA=dividends and gains, the proportion I inherited of the annuities my late husband bought when Equitable Life collapsed and ever declining interest. I/we have given fairly substantial sums to children and grandchildren after we downsized but my husband didn't want to give more in case we needed it for care home fees. I am likely to be caught by the 7 year rule if I make large gifts now.

Academic now so far as I am concerned, but might be useful for the children to know the answer, I am not clear about the rules as regards the tax position when leaving a defined benefit pension to heirs. Is it sill tax free if you die after age 75 and what does it mean by "if claimed within 2 years of death". It seems unfair that ISAs get no IHT relief after death, not having had any relief when paying contributions, if pensions get it both ways and if one doesn't spend it there hasn't been much benefit for all the hard work involved in managing the investments. For that reason, it will not bother me at all if I have to run down the value to fund increasing expenditure on living costs and medical expenses including the very expensive drugs that the NICE refuses to fund until such a late stage that they are pointless. I have never been offered the opportunity but will take the initiative and hope it means that they will end up paying my pension and SERPS for longer and collect less IHT at the end of the day. Knowing my luck, however, I will then find that the drugs don't actually do what is claimed. :shock:

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Re: Becoming an ISA Millionaire

#477923

Postby tjh290633 » February 1st, 2022, 11:28 pm

anniesdad wrote:Question for all ISA millionaires (actually there, or seeking to get somewhere near there)
1. Presumably concentrating on maxing out your ISA contribution each year means that you have ‘neglected’ to some extent your pension contributions?
2. On retirement the contributions stop but does the £million (or other large amount) remain in the ISA providing you a tax free income. So the ISA is de facto your pension in all but name meaning your actual pension is somewhat negligible or secondary?
3. If you were starting out again as a young person would you contribute £20k pa into an ISA or a pension?

You may be able to add to your ISA after retirement using pension income. I have contributed over twice as much to my now ISA since retirement as I did before, not least because the subscription amount allowed increased for the original £2,400 to £6,000 for PEPs, and then to £7,000 for ISAs.

My view is that pension contributions, in whatever form, should be used to reduce any higher rate tax. Anything left after that should go into an ISA.

TJH

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Re: Becoming an ISA Millionaire

#477960

Postby anniesdad » February 2nd, 2022, 9:12 am

TJH, so standard rate tax payers may be better off ignore pensions as such and just invest into an ISA? Assuming they have willpower to not spend it. I’ve reached 7 figures but not in my ISA, it’s mainly in BTL property, and my home which is mortgage free. My ISA was 500k but divorce obliterated that and I’m interested in rebuilding that now.

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Re: Becoming an ISA Millionaire

#477963

Postby tjh290633 » February 2nd, 2022, 9:27 am

anniesdad wrote:TJH, so standard rate tax payers may be better off ignore pensions as such and just invest into an ISA? Assuming they have willpower to not spend it. I’ve reached 7 figures but not in my ISA, it’s mainly in BTL property, and my home which is mortgage free. My ISA was 500k but divorce obliterated that and I’m interested in rebuilding that now.

There is a marginal advantage for a SIPP, because of the 25% tax free that you can withdraw. The income or other withdrawals taken from an ISA are free of tax, so if your marginal income from all pensions take you into higher rates of tax, then the ISA is more beneficial. A further consideration for a SIPP is that you can bequeath any undrawn value to a younger person free of IHT, I Am told.

TJH

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Re: Becoming an ISA Millionaire

#477975

Postby TUK020 » February 2nd, 2022, 10:01 am

ayshfm1 wrote:I view my ISA as secondary, so I always prioritised my pension over the ISA and indeed have taken cash from the ISA to top up disposable income in order to ensure as much as possible of my earned income goes into the SIPP. I have never targeted being an ISA millionaire and doubt it will ever happen.

On retirement, my ISA will carry on re-investing and I will add whatever cash I don't need. This will get reviewed and effectively mitigates the possibility that the SIPP income doesn't keep pace with my living expenses over time.

The last question is a good one. In my view, ISA should be the priority for those paying basic rate tax, pension becomes priority when higher rate tax is payable. There are other reasons why ISA's are compelling in early life, but the tax arbitrage is the underlying good reason.

This question would be better posed on the Retirement Investing page.

SIPP contributions (and withdrawals) should be determined by your tax rates (now, likely rate when you retire, and LTA exposure). Best to think of your SIPP wrapper as a means of arbitraging your tax rate now and your tax rate later.
If you are a higher rate taxpayer now, but expect to be a basic rate taxpayer when you are drawing pension, then you should max your SIPP contributions until you are likely to hit the LTA.
When you are withdrawing money from SIPP, you should endeavour to keep within the Basic rate.
Any surplus before or after pension drawing should then be stuffed into ISA (or topped up from ISA).

The two complications ot the above are:
a) intention to retire before SIPP withdrawal age (now 57?)
b) Inheritance Tax planning.

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Re: Becoming an ISA Millionaire

#478039

Postby everhopeful » February 2nd, 2022, 12:53 pm

I recognise that it does not apply to some of the posters above but it is worth remembering that under the present rules an ISA can be transferred to a spouse free of IHT by increasing the value of the spouse's ISA when the holder dies.


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