ISAs are expected to save UK savers an estimated £9.65bn in income tax and capital gains tax in the 2025/26 financial year, Hargreaves Lansdown (HL) has revealed.

The financial services revealed that this figure is down 1% year-on-year, due to lower cash ISA rates after the Bank of England cut the base rate.

However, the latest data marks a 45% increase in the 2023/24 financial and a 135% jump on five years ago.

Cash ISAs protect savers from income tax on interest, while a stocks and shares ISA saves capital gains tax and dividend tax on investments.

Head of personal finance at HL, Sarah Coles, said that the run-up to the Budget led to "endless speculation" around tax reforms, which resulted in increased interest in ISAs.

She added: "In the tax year up to the Budget, a record number of people paid into both stocks and shares ISAs and cash ISAs. A combination of this – and the fact ISAs were already such a vital part of so many people’s finances – means they’re expected to save the UK an incredible £9.65bn in the current tax year.

"The amount of tax saved in ISAs is also partly dictated by returns, so the fractional drop in the tax saving over the past year owes a lot to lower cash ISA rates. However, this needs to be seen in the context of the massive rise in tax savings over the past few years – and the more than doubling of the tax saved in the past five years."

Furthermore, the personal savings tax allowance is expected to save £800m for savers this year, up from £770m a year earlier, despite falling savings rates.

HL said that this growth has come from an increase in the number of savers taking advantage of the tax relief, which has increased from 13.9 million to 14.4 million people

Meanwhile, the amount of tax saved annually has almost tripled in the last five years.

Coles concluded: "Savings rates are still far higher than they have been for years, and savers are squirrelling money away while wages are rising faster than prices – partly because there’s so much uncertainty over what the future holds in store.

"We can’t afford to rely on this allowance though, not least because frozen income tax rates have pushed more people into higher tax bands, where their personal savings allowance has halved or disappeared overnight. With these thresholds frozen for longer, tax on savings is likely to remain a worry for millions of people."

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