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ISA investments over time – 25 years in review

We look back at 25 years of ISAs and what we can learn from investments over that time.
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Important information - This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

This 6 April marks 25 years since the launch of the ISA.

As well as the birth of this tax-efficient wrapper, 1999 saw quite a few bright young things burst onto the scene – the Euro, SpongeBob SquarePants and Britney Spears’ ‘… Baby One More Time.’

We’ll leave the impact of absorbent, yellow and porous cartoon characters, and chart-topping hits for another time, but what about ISAs? What has the launch of the ISA meant for investors? And, where would early adopters of ISAs have invested to get some of the top returns in the years since?

The information in this article isn't personal advice – ask for financial advice if you’re not sure an investment is right for you. ISA and tax rules can change, and benefits depend on your circumstances.

25 years of ISAs - what's changed?

When it first launched, the ISA allowance (the amount you can put into ISAs each tax year without paying UK tax on money your ISA makes) was just £7,000. It’s since grown to £20,000 – although it’s not changed since April 2017.

The amount we’re paying into ISAs has grown tremendously. In the first year, £28.4bn was paid into 9.3mn adult ISAs. In the 2021/22 tax year, there was an estimated £66.9bn paid into 11.8mn ISAs.

In this time we’ve also seen new kids on the block. The Junior ISA launched in 2011, the Help to Buy ISA in 2015, Innovative Finance ISAs came out the year after and the Lifetime ISA the year after that.

Some didn’t stay for long. The Help to Buy ISA closed to new entrants only four years after launching. Meanwhile the distinction between mini and maxi ISAs was scrapped and replaced with a choice between a Cash and Stocks and Shares ISA.

Indeed there are now a range of options for investors with all kinds of financial goals.

The four main types are Stocks and Shares ISAs, Lifetime ISAs, Junior ISAs, and Cash ISAs.

With a Stocks and Shares ISA you can put money into an ISA and use it to buy shares, funds and other types of investments.

As with all ISAs, the money you invest, and any income from it, is free from UK tax.

Lifetime ISAs were created to give you a boost towards buying your first property or saving for retirement. Junior ISAs allow you to invest on behalf of your child. And Cash ISAs combine the stability of cash savings with tax-efficiency.

What were the top-performing funds in those 25 years?

When comparing all the funds listed in the Investment Association that would’ve been available to invest in (and stay invested in) from the day ISAs launched, 6 April 1999 to the end of January this year, some performed much better than others. Although it’s worth remembering past performance isn’t a guide to the future.

Marlborough Special Situations – would’ve turned £1,000 into £26,268.

Abrdn (formerly Aberdeen Standard) Indian Equity would’ve returned £23,796.

HSBC Indian Equity – would’ve returned £22,768.

Each have their own reasons for their specific performance over this period, and it’s never a guide to how they’ll perform in future. And while they did provide higher returns than say a global tracker fund, they did it with a lot more ups and downs.

For example, on average, the HSBC Indian Equity fund had more than double the annual volatility of a global tracker.

So, while these were the top-performing funds, they did come with more risk.

Top 3 performing funds

Past performance isn’t a guide to future returns.
Source: Lipper IM, to 31/01/2024.

Annual percentage growth

31/01/2019 To 31/01/2020

31/01/2020 To 31/01/2021

31/01/2021 To 31/01/2022

31/01/2022 To 31/01/2023

31/01/2023 To 31/01/2024

abrdn SCV I - Indian Equity A Acc USD

10.30

4.77

19.84

-9.35

15.27

HSBC GIF Indian Equity AD

10.47

1.91

30.55

-3.46

21.32

IFSL Marlborough Special Situations A Accumulation

13.36

18.52

8.43

-23.53

-4.79

Past performance isn't a guide to future returns.
Source: Lipper IM, to 31/01/2024.

What were the top-performing shares in those 25 years?

We compared UK companies, which could’ve been bought and held in ISAs between April 1999 to now, with dividends reinvested.

Diplomathe distribution company could’ve turned that initial £1,000 investment into £267,640 in the 25-year period.

Goodwin – the engineering company would’ve returned £208,316.

Renew Holdings – another engineering firm would’ve returned £170,603.

None of these figures account for dealing costs. And there’s always the possibility for a company that’s been riding high to hit a really sticky patch.

Had we been looking at the top-performing shares up until the end of last year, “King of Trainers” JD Sports would have featured in the number two spot.

However, at the start of January, the company warned that sales had grown by less than expected and the shares fell 20% in early trading that day.

Top 3 performing shares

Past performance isn’t a guide to future returns.
Source: Lipper IM, to 23/02/2024.

You might be considering investing in individual shares rather than funds. However, it’s important to note shares are higher risk and investing in an individual company won’t be right for everyone – if that company fails, you could lose your whole investment. If you can’t afford this, investing in a single company might not be right for you. Make sure you understand the companies you’re investing in and their specific risks. You should also make sure any shares you own are part of a diversified portfolio.

You could consider investing in funds, which can help spread your money (along with other investors’) across a wide range of investments, as well as sectors and different parts of the world. Although, it’s worth remembering a fund on its own doesn’t make a diverse portfolio.

25 years on - what you can do with an ISA right now?

ISAs are set to save us an estimated £3.8bn in tax this tax year.

An average Cash ISA started in 1999 could’ve turned £1,000 into £1,797 25 years later. The same amount in a global tracker fund in a Stocks and Shares ISA could’ve grown into £4,271 by the end of last month.

Investing can grow your money more over the long term, but by long term we mean at least five years. For anything less than that, you should consider savings – and a good place to start is your emergency cash savings.

Remember, past performance isn’t a guide to the future. And unlike the security of cash savings, the value of investments goes up and down, so you can get back less than you put in.

While these figures show what would’ve been returned, we shouldn’t lose sleep over growth we might’ve missed. Instead, it’s worth looking to the future, and taking advantage of ISAs now.

ISAs let you invest your money free from UK tax. Without one, a higher-rate taxpayer (with all their £6,000 capital gains tax exempt amount still available) who sold all of their 25-year-long holding in Renew Holdings this tax year would be looking at over £32,000 in capital gains tax. And a capital gains tax bill of just over £3,300 would be on its way to a higher-rate tax payer selling their holding in the HSBC Indian Equity fund held outside of an ISA after 25 years.

These figures show that if you’re putting money away for the long term, it’s well worth considering a Stocks and Shares ISA.The right assets and approaches will depend on your circumstances and objectives.

HL Stocks and Shares ISA

This year’s ISA allowance is £20,000. That means you can invest up to that amount free from UK income and capital gains tax.

The more money you’re able to save from tax, the harder it can work for you over the long term.

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Written by
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Chris Hill
Investment Writer

Chris writes on topics about ISAs and personal finance, as well as working to improve our website for our clients. He's passionate about current affairs and helping make investing accessible to those who are just starting out.

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Article history
Published: 28th February 2024