The cash ISA season has started early, partly on the back of speculation about its future (Image: Getty)
Financial experts have revealed that cash ISAs can protect savers from five hidden taxes.
is believed to be considering whether to scrap the tax-free cash version of the ISA savings account.
Earlier this month the Daily Express’ Harvey Jones said city fund managers had been urging Reeves .
In a meeting with Reeves, they argued that if some of the £300billion sitting in cash ISAs was diverted into the stock market, it would give UK PLC a real boost.
But experts have said that not all savers want to invest in the stockmarket and many use their cash ISA as an emergency savings fund.
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Hargreaves Lansdown said 56% of new clients have opened a cash ISA in the last week – and that such a rush would not normally happen till early March.
Money is also pouring into cash ISAs that already open, with deposits up 325% in 2025 so far versus the same period in 2024.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said there were five hidden taxes that an ISA can be used to offset or prevent.
1. If you make a profit on a Sharesave scheme from work
You can use an ISA to save on capital gains tax paid on shares bought from a Sharesave scheme (SAYE) or Share Incentive Plan (SIP). This is when you buy shares in the company you work for at a discounted rate. As long as you transfer the shares into an ISA within 90 days of exercising the option on your shares, there won’t be any CGT to pay on them if you sell them. The same applies for SIP shares, provided they are moved into an ISA within 90 days of them leaving the SIP. You can transfer up to £20,000 of shares.
2. If you invest for a child in a bare trust, they could face an unexpected CGT bill at 18 – but an ISA or a JISA can protect you
If your child has investments in a bare trust, and you haven’t thought about capital gains during their childhood, then at the age of 18, they could be sitting on a significant gain but also a huge tax bill. Instead you can use your child’s annual CGT allowance each year of their childhood by selling assets from the trust and putting up to £9,000 a year into a Junior ISA.
If they still have gains when they reach 18, they can continue the process, using their annual CGT allowance each year, and the share exchange (or Bed and ISA) process to move those assets unto a stocks and shares ISA. As long as they don’t bust their annual CGT allowance, they can gradually protect those assets from tax forever.
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3. AIM ISAs are currently potentially free of inheritance tax after two years
The Alternative Investment Market, or AIM is a an index of smaller UK companies. The government wants people to invest in these companies so if you have AIM shares for at least two years and die then you will not pay inheritance tax. This will change in April 2026, but even then, although IHT will be charged at 20% and not 40%.
Not all shares on this market qualify, and those that do will be smaller and newer companies, which are high risk investments, so should only be considered as a small part of a large and diverse portfolio, and only then if they suit your circumstances.
4. A high earning parent could save at least some of the high income child benefit charge by sheltering savings within an ISA.
The high income child benefit charge is triggered when one parent in a household that’s claiming child benefit has taxable income of £60,000 or more – with all the benefit lost when a parent’s taxable income reaches £80,000. The income threshold includes things like taxable interest from savings, as well as salaries and bonuses, so by moving any savings into an ISA, parents can lower their taxable income from savings to reduce the charge – or avoid it altogether. The other way to sidestep this charge is with a pension contribution – which cuts the amount of your income that’s counted when the charge is calculated.
5. Someone making over £100,000 may be able to use an ISA to protect themselves from 60% tax and losing free childcare
The rules mean that for every £2 in taxable income over £100,000, your personal allowance reduces by £1, and is completely extinguished by the time that income reaches £125,140. This includes taxable income from things like savings and dividends. By moving them into an ISA, the income becomes tax-free, so doesn’t count towards this £100,000 limit. This saving is on top of the fact you’re not paying tax on this income.
Three well known taxes your ISA protects you from
1. No capital gains tax (CGT) on investments
After the annual exemption of £3,000, CGT on stocks and shares is charged at 18% for basic-rate taxpayers and 24% for higher and additional-rate payers. By moving investments into an ISA, CGT is completely avoided. It’s worth noting this isn’t just a boon when you decide to sell up and cash out, it also makes an enormous difference every time you rebalance your portfolio as you go along.
2. No income tax on interest
By using an ISA, basic-rate taxpayers can save 20% income tax on interest they receive from savings and corporate bonds. Higher-rate taxpayers save 40% tax and additional-rate payers save 45%. Although basic-rate and higher-rate taxpayers benefit from a personal savings allowance (which means they can receive up to £1,000 and £500 savings interest a year respectively, without paying income tax), additional-rate taxpayers don’t get this allowance at all.
3. No tax on dividends
While everyone has a dividend allowance of £500 this year, investors pay tax on any dividends they receive above this amount. Basic-rate taxpayers pay 8.75% tax, higher-rate taxpayers pay 33.75% and additional-rate taxpayers 39.35%. Sheltering investments in an ISA means dividends will be totally tax-free.