Last minute stampede for Isas before the Budgets due to fear of an imminent tax raid

Savers are making one last dash to protect their hard-earned money from the clutches of Chancellor Rachel Reeves ahead of the Budget.

In recent months, record numbers of people have been stockpiling money in tax-free individual savings accounts to avoid the potential impact of an increase in capital gains tax.

It comes as it emerged that the now Chancellor had previously proposed a £500,000 limit in a column she wrote for The Independent in 2016.

And it is not surprising that these are the preferred accounts, given the number of savers who are getting rich from investing.

The number of savers who have built up a tax-free savings of £1m by investing in stocks and shares has soared, tripling in the last three years.

There are currently 3,180 Isa millionaires, up from 1,030 just three years ago, we can reveal.

Figures from HM Revenue & Customs, obtained through a freedom of information request by stockbroker InvestEngine, show that there are more than 10,000 people who now have more than £750,000 held in these accounts, while more than a quarter of a million have £250,000.

In the 2016-17 financial year there were just 570 Isa millionaires.

Fears of the impending tax raid have seen investors flock to stocks and shares Isas, funneling 156 per cent more into these accounts in September than during the same period last year, Isa provider Bestinvest reported.

Payments to the platform in the first 11 days of October already exceeded the amount paid during the entire month of October last year.

As well as stocks and shares Isas, there are several different types of Isas: cash, junior and innovative finance.

Its big appeal is that you can save up to £20,000 a year without having to pay a single cent in tax on any interest, income or capital gains made.

This allocation can go to one account or be divided among several.

Their tax-free benefits make them particularly attractive to those who would otherwise be caught by the savings tax or capital gains tax.

But most millionaires have achieved that status by investing their money, says Andrew Prosser, chief investment officer at InvestEngine.

It would have been impossible to reach the coveted million pound mark by earning interest solely on cash savings.

This is partly because the interest paid on these accounts is significantly lower than the average returns that can be achieved by investing in stocks and shares, but also because the annual provision for cash Isas has historically been lower.

Between 1999 and 2008, you could only save up to £3,000 in a cash Isa, while you could save up to £7,000 a year in stocks and shares Isa.

Prosser says: ‘Even someone who has invested the maximum cash into an Isa every year since they (Isas) were launched in 1999, would earn around £275,000 – a large sum, but well short of millionaire status.

By contrast, more than 3,000 people have become millionaires thanks to their stocks and shares Isa, and another 30,000 have accumulated more than £500,000 for their futures.’

The average rate of return on stocks and shares Isa over the last ten years is 9.6 per cent, according to rates expert Moneyfacts.

Meanwhile, lower risk cash Isas have paid an average interest of 1.21 per cent.

However, Isa cash rates have improved because interest rates have been higher. The average account currently pays 3.24 per cent, according to Moneyfacts.

Someone who saves the maximum £20,000 a year (£1,667 a month) in a stocks and shares Isa could become a millionaire in 19 years, by 2043, if they achieved the average returns of the last ten years. It could take twice that time to reach the million pound mark in a cash Isa, Prosser warns.

However, it has been possible to achieve even higher yields.

Investing your money in a fund tracking global stocks would have given you an annualized return of 12.77 percent. But remember that any money you invest in the stock market can go up or down.

Prosser says: ‘While not everyone will be able to save this amount of money each year, this shows the importance of thinking long-term about investments and the power of compounding.

“Starting early each year, even with small amounts, and not stopping investing until the end of the financial year, creates the potential to generate large sums for later in life.”

Reeves is rumored to be likely to increase capital gains tax rates, which would be a blow to savers whose investments are not held in a tax-free account.