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Savings alert: How you can grow your pot into £1m by following these easy steps


The key to building a savings pot worth more than £1 million is to take advantage of tax allowances across multiple investment and savings accounts, according to new research.

Investment experts Hargreaves Lansdown found 81 percent of its clients who have pots worth more than £1 million have a stocks and shares ISA.

These allow Britons to put their money – up to £20,000 a year – into a range of investments while protecting any income and capital gains from UK tax.

This group will also be more likely to have a SIPP – Self Invested Personal Pension – that allows them to actively chase higher returns through investments.

Contributions to SIPPs qualify for tax relief, which means contributions are boosted by a payment from the government.

For example, a 20 percent basic rate taxpayer who contributes a lump sum of £2,000 into a SIPP will get tax relief of £500 from the government, so a total of £2,500 is invested in the SIPP.

A higher-rate (40 percent) taxpayer saving £2,000 can claim extra tax relief of up to £500 through your self-assessment tax return, and up to an extra £625 if they are an additional-rate (45 percent) taxpayer.

In theory, you can put 100 percent of your income into a SIPP each tax year up to the maximum of £60,000, which includes personal contributions, employer contributions and tax relief.

SIPPs can offer much wider investment options than other private pension types, including company shares (UK and overseas); collective investments – such as open-ended investment companies (OEICs) and unit trusts; investment trusts; property and land.

Head of investment analysis and research at HL, Emma Wall, said: “Ever wondered what it takes to build up an investment pot of a million pounds or more?

“A bit of luck and time in the market certainly play a part, but there are also certain behaviours which mark out those who have hit seven figure status on their savings.

“Looking at the habits of HL clients who had built up an investment pot on platform of £1m or more, there are a number of patterns to be found in the analysis.

“The first is that millionaire investors are far more likely to have multiple accounts than those with smaller pots.

“Some 81 percent of millionaire investors have a stocks and shares ISA, compared to 50 percent of clients with platform investments below £1m.

“Similarly, HL millionaire investors are more likely to have a SIPP, a drawdown account and a cash ISA.

“With the average age of an HL ISA millionaire sitting at 74 years old, having a drawdown account isn’t surprising, plus if they are a hands-on investor, a SIPP gives them the opportunity to access real choice in their pension pot too.”

She added: “Thanks to recent high interest rates, cash has proved popular with our millionaire investors too, with more than a third of them having an Active Savings account.”

Miss Wall said: “Reinvesting dividends is a great way to harness the power of compound interest and should be your default while you’re in the accumulation stage of your investment journey – prioritising growth over needing income.”

However, she said HL millionaire investors do not always default to this. Instead, they are more likely to have a mix of instructions set up for different accounts; taking income from some, reinvesting dividends in others and holding money on account where needed.

“This is likely a result of millionaire clients having multiple accounts where they wish to treat their pots differently as suits the tax wrapper,” she said.

Miss Wall said: “And now the final juicy question – what is in these million-pound investment pots? A mix of assets is the answer. Equities, funds, ETFs and trackers, gilts and bonds.

“There is a bias towards single equities and gilts versus those with smaller pots, and they are less likely to have ETFs and passive tracker funds than those with smaller pots.

“It’s not wholly surprising to see a greater bias towards individual equities – while it’s generally accepted that investors should reduce within their investment portfolio as they approach retirement, those with greater sums to invest may be more willing to take the risk of investing in individual company shares.”

Miss Wall said: “Those with the ability to use up their ISA or SIPP allowances will also be looking for other ways to maximise their tax efficiency – by holding gilts, for example.

“Investors who purchase gilts directly, rather than through a fund, don’t have to pay capital gains tax on any increases in their capital value between purchase and sale or maturity.

“For some investors, particularly those who pay higher rate tax, this has made low coupon bonds appealing. Coupons paid by gilts are taxed as income. Gilts with a low coupon are appealing because most of their returns come from a capital gain, which is not taxed.

“This doesn’t matter if you buy the gilt within a tax efficient wrapper such as an ISA or a SIPP, but it does if you invest in other accounts too.”

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