Cash ISAs saved British households £2.79 billion in tax relief during the 2024‑25 tax year, according to figures obtained from HM Revenue and Customs.
Tax savings surge as interest rates rise
The jump in relief reflects higher interest rates on savings deposits and unchanged income‑tax thresholds. AJ Bell, a stock‑broker that secured the data through a Freedom of Information request, said the combination of “high savings rates and frozen thresholds” drove the increase.
In the previous year, savers claimed about £1.3 billion in tax relief. For basic‑rate taxpayers, the tax‑free savings‑interest allowance sits at £1,000 a year; any interest above that is taxed at the individual’s marginal rate. Higher‑rate earners receive a £500 allowance, and those in the additional rate have no tax‑free portion.
Putting money into a cash ISA instead of a standard account eliminates tax on all interest earned. Recent savings products have offered rates exceeding 4 percent, with some surpassing 5 percent, making the tax shelter even more attractive.
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Upcoming cut to the cash ISA limit
From April 2027, the maximum contribution for under‑65s will fall from £20,000 to £12,000, a policy announced by former chancellor Rachel Reeves. The stocks‑and‑shares ISA allowance will remain at £20,000, signalling a shift toward equity investment.
People with more than the reduced cash ISA limit will need to either move excess funds into a taxable savings account or consider a stocks‑and‑shares ISA. The change is expected to push savers to load their cash ISAs now, hoping to lock in the current tax benefit before the reduction takes effect.
Investment ISAs have also seen tax relief rise. In 2024‑25, dividend tax relief inside these accounts reached £5.78 billion, up from £4.32 billion the year before.
Capital‑gains tax relief grew to £1.18 billion from £1.04 billion.
Many families are reconsidering their savings plans.
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The reduction in cash ISA limits could reshape how households allocate savings. If the cap drops as planned, many may be compelled to explore higher‑risk investments or accept the tax drag on ordinary accounts.
Sarah Coles, a commentator on the savings arena, noted that during the pandemic “savers were barely making anything on their savings,” and that the recent rate hikes have dramatically increased the tax savings potential. She added that frozen income‑tax thresholds have pushed more workers into higher bands, reducing their tax‑free allowances and making cash ISAs “vital in recent years.”
For those still weighing options, the market offers a range of cash ISA products with varying features and rates. While some accounts provide flexible access, others lock in higher rates for fixed terms. Consumers are advised to compare offers carefully, noting any minimum opening balances and transfer conditions.
Overall, the data show that the cash ISA has become a key tool for shielding savings from tax, especially as interest rates climb and thresholds remain static. The upcoming allowance cut will test the resilience of this strategy, and policymakers may need to watch the impact on household savings behavior.
