How To Become An ISA Millionaire

For a lot of investors searching for the best performing funds the tax treatment of their investments and the effect it can have on the eventual returns can sometimes get overlooked.  In the whole scheme of things the annual ISA allowance may seem relatively small and gets used if we remember to do it before the end of the tax year.

If this sounds familiar then you may be missing out on a million-pound opportunity.  This week the Telegraph reported that several private client investment firms have announced they now have clients that are ‘ISA Millionaires’. When you start to look at the numbers, for someone taking full advantage of their PEP and ISA allowances each year since 1987, it’s not difficult to see how it could happen.

For a couple combining their allowances over the past 25 years you would only require an investment return of 5% per annum before you found yourself sitting on a fortune in excess of £1million.

Of course you could achieve the same result in any type of investment vehicle but by taking advantage of your tax free allowances you will have avoided any capital gains or income tax on the profits.   Without that benefit you would have needed a much higher rate of investment return (and consequently more risk) to achieve the same result.

The end of the tax year is already fast approaching so if you haven’t used your 2011/12 allowance make sure you do so before 6th April.  Combine it with making your 2012/13 payment soon after 5th April and that is £21,960 invested and you could already be on your way to that first million.