Tax relief enjoyed by Cash ISA savers rises from £70 million to £2.1 billion in two years

AJ Bell press comment – 19 March 2025

• Data obtained from HMRC by AJ Bell under a freedom of information (FOI) request reveals the value of tax relief provided to Cash ISA savers and Stocks and Shares ISA investors 

• The value of the tax relief provided to Cash ISA savers has risen from £70 million in 2021/22 to £2.1 billion in 2023/24 

• Meanwhile the value of tax relief for Stocks and Shares ISA investors has doubled since 2017/18, from £2.8 billion to £5.6 billion 

• The average Cash ISA holder is saving £114 in tax a year, while the average Stocks and Shares ISA holder is saving £721 a year 
• Rising interest rates, frozen tax thresholds, and cuts to the dividend and capital gains tax allowances have made these tax shelters much more valuable 

Laith Khalaf, head of investment analysis at AJ Bell, comments: 

“ISAs have never been more valuable to savers and investors as these figures clearly demonstrate. Rising interest rates have left many people on the hook for tax on their savings interest, but those who have sheltered their money in a Cash ISA collectively saved themselves over £2 billion in tax in the last tax year (see table below). A typical Cash ISA saver therefore saved £114 in tax thanks to wrapping their cash in a tax shelter, based on the latest Cash ISA holder numbers published by HMRC. 

“The value of the tax protection provided to Cash ISA savers has ballooned in recent years, from £195 million in 2017/18 to £2.1 billion in 2023/24. In 2021/22 it fell to just £70 million. This is primarily a function of rising interest rates bringing more savings interest into the tax net. Frozen tax thresholds also mean more people are now liable for income tax on their savings interest at higher and additional rates too.” 

Cash ISAs back on the menu

“We’ve also seen a rise in the popularity of Cash ISAs. The introduction of the personal savings allowance in 2016, combined with ultra-low interest rates, made Cash ISAs seem surplus to requirements, because few people had an issue with taxable savings interest in that environment. That picture has now changed dramatically, reinforcing the value of the Cash ISA for money that’s stored away for a rainy day. 

“While there have been rumours surrounding the future of the Cash ISA, it’s important to recognise the £2.1 billion cost of the tax shelter in 2023/24 doesn’t reflect the amount the Exchequer could save by reducing or even abolishing the Cash ISA allowance. The amount already held in Cash ISAs would presumably retain its tax protection in this scenario, and only potential future contributions would be affected. The short-term impact on the Treasury’s books from such a policy would therefore be much, much smaller, especially if it succeeded in its goal of encouraging more people to take out a Stocks and Shares ISA instead.”

Stocks and Shares ISA investors save £721 a year on average 

“Stocks and Shares ISAs are saving investors significant sums of tax too. There’s more money held in Stocks and Shares ISAs, and investors benefit from protection from both tax on dividends and capital gains tax on investment growth. As a result, Stocks and Shares ISA investors collectively saved £5.6 billion in tax last year, equivalent to £721 for the average ISA investor in the course of the year, based on HMRC data (see table below). 

“Again, this amount has risen substantially in recent years, from £2.8 billion in 2017/18. Some of the same factors pushing up the tax protection provided to Cash ISAs have had the same effect on Stocks and Shares ISAs. Rising interest rates mean a higher income from bonds, cash and money market funds, which is protected from tax by the ISA wrapper. Frozen tax thresholds also mean individuals being pushed up into higher tax brackets and therefore ISAs providing protection from higher rates of tax. 

“There are other factors at play too with the Stocks and Shares ISA. The dividend and capital gains allowances have been drastically scaled back, opening up those who haven’t wrapped their investments in an ISA to more tax. At the same time booming stock markets have created capital gains for investors that would be heavily taxed if held outside a Stocks and Shares ISA. A typical global index tracker fund has grown by 92% since April 2017 (source: FE, Fidelity Index World Inc). Since then, the capital gains allowance has been cut from £12,300 in 2022/23, to just £3,000 now.  

“The ISA has been a hugely successful and popular account that has helped individuals with different risk appetites and financial goals to save and invest for their future. The tax breaks available on these accounts are a key factor in their success. The ISA family has grown over the years and there is now a strong case for ISA simplification. But for savers and investors, ISAs remain an incredibly valuable tool to stave off the rising tax tide.” 

FOI request to HMRC made by AJ Bell

Source: HMRC, provided to AJ Bell in March 2025.