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This is a non-independent marketing communication commissioned by BlackRock. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
H2: From PEP to ISA
Originally introduced by Chancellor Nigel Lawson in 1986 as the Personal Equity Plan (PEP)1, its purpose was to encourage the “democratisation” of investment, by offering a tax-efficient avenue into the stock market to a broader range of savers. The original amount that savers could shelter from the tax authorities was set at £2,400 per annum,1 but the annual allowance has been increased several times since then.
The PEP was replaced in 1999 by the ISA,2 but its intention remained the same. At the outset, savers could place £7,000 each year into an ISA. The amount each adult can currently shelter from the tax authorities each year stands at £20,000 per person.3
In the meantime, the ISA has evolved, with innovations such as the Junior ISA in 2011,4 which allows adults to save up to £9,000 per annum for their children, and the introduction of the Lifetime ISA in 2017,5 as a way for people to save or invest for their future, providing an additional boost towards buying a first property or saving for retirement.
H2: How much has been invested in ISAs in the UK?
The amount we’re paying into ISAs has grown significantly over the years. In the tax year of their introduction £28.4 billion was saved across 9.3 million adult ISAs.6 By the 2021-22 tax year, this amount had grown to £66.9 billion across 11.8 million adult ISAs.7 It has clearly been a huge success, attracting more than £700 billion of investment since 1999.7 More than 22 million UK adults currently use the ISA wrapper to help build their long-term wealth,7 which is clear evidence that the tax-efficient structure has gone some way to fulfil its original objectives.
Indeed, the ISA’s role in democratising investment in the UK has also helped catalyse the significant growth we have seen from the investment trust industry over the last 25 years. According to government data, more than £28 billion of ISA money is invested in investment trusts.1 BlackRock manages nine investment trusts focused on specific market niches, all of which are suitable for consideration as a home for an individual’s ISA allowance.
Meanwhile, the ISA structure continues to be reformed. In the 2024 Spring Budget, Chancellor Jeremy Hunt introduced the concept of the UK ISA, which will represent an opportunity for investors to shelter an additional £5,000 from the tax authorities annually, as long as they invest it in the UK. We expect to receive the finer details of this policy in the coming months, but the intention is to encourage more investment into UK companies, which is similar to the aim of the original PEP back in 1986.
H2: Have ISAs made people wealthy?
The ISA has clearly been successful in encouraging more investors to access the UK stock market to help build their long-term wealth. So much so, in fact, that it is estimated that the UK now has more than 4,000 ISA millionaires.8
Within the investment trust industry, according to research from the Association of Investment Companies (AIC), the trade association which represents the investment trust sector, a total of 32 investment trusts could have created millionaires of their shareholders.9
Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.
This is an excellent reminder of the power of compounding in the stock market, as well as the ability of active investment managers.
Conclusion
Beyond the thousands of ISA millionaires that have been created, there has been a much broader benefit, with literally millions of investors becoming empowered to build a valuable, tax-efficient portfolio of ISA investments.
The ISA has changed significantly over the years and, as the recent UK ISA proposal demonstrates, it continues to evolve. Throughout the change, however, it has remained a highly relevant structure for UK investors and its success to date should be seen as just the beginning. The process of long-term compounding – Albert Einstein’s “eighth wonder of the world”10 – may mean that many more ISA millionaires could be created in the years ahead.
From the start, the ISA has been a highly suitable home for investment trusts, and that continues to be the case today. Investment trusts are a highly valid route to market for investors that are hoping to be part of the next generation of ISA millionaires.
1 Hansard – 1986 Budget Statement – 18/03/1986
1 Hansard – 1986 Budget Statement – 18/03/1986
2 Hansard – 1998 Spring Budget Statement – 17/03/1998
3 UK Government – Individual Savings Accounts – 18/04/24
4 UK Government – Junior ISAs launch today – 01/11/2011
5 UK Government – What you need to know about the new Lifetime ISA – 17/02/17
6 HMRC – Individual Savings Account (ISA) Statistics – 30/06/22
7 UK Government data – annual savings statistics 2023 – 22/06/23
8 The Openwork Partnership – ISA millionaires hit record high – 01/08/23
9 AIC – ISA millionaires – 13/02/24
10Investors Chronicle – Compound interest – the eighth wonder of the world – 22/09/22
Risk warnings
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.
Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.
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