Savers with a cash ISA paid £2.1 billion less tax in 2023 while savers with a stocks and shares ISA investors paid £5.6 billion less tax, according to AJ Bell.
It said a freedom of information request it made to HMRC found that the average cash ISA saved £114 tax a year, while the average tocks and shares ISA holder saved £721 a year.
Laith Khalaf, head of investment analysis at AJ Bell, said rising interest rates, frozen tax thresholds, and cuts to the dividend and capital gains tax allowances, have made these tax shelters much more valuable.
Chancellor Rachel Reeves had been under fire for reportedly planning to either scrap the cash ISA or reduce the £20,000 annual tax-free allowance, with a new cap of £4,000 being considered. However, the proposals, which were touted as a way to boost the UK’s economy by encouraging more savers to take out stocks and shares, will not be announced in the upcoming Spring Statement.
Treasury officials said the Chancellor was still considering changes, but these would be announced at a later date. These could still include a proposal to limit the amount savers can put into a cash ISA.
Khalaf said: “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.
“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.”
