ISA rush forecast as threshold is increased

Equity ISAs could outsell cash ISAs by two-to-one when the tax-free threshold is increased for all savers in the new tax year, new research from Virgin Money suggests.

Its nationwide poll of IFAs show 20% expect investment in equity ISAs will benefit when the tax-free threshold is increased to £10,200 for all savers aged over 18 from 6 April compared with 9% who believe cash ISAs will be the winners.

The research shows 42% of advisers believe the new rules - which were introduced for the over-50s on 6 October 2009 - will boost equity and cash ISA investment when they come into effect in the new tax year.

Just 19% of advisers believe the new rules will have no effect on net new ISA investment which soared to an eight-year high of £2.8 billion in 2009.

Virgin Money's own analysis shows that the over-50s are already cashing in on the new rules - and the stock market revival - with investors more than doubling lump sum investments between 6 October and 5 January this year.

And the trend has continued in the past three months with this year's ISA season set for record sales after years in the doldrums.

Grant Bather, spokesman at Virgin Money, said: "The over-50s have led the way and other savers are set to follow suit once the ISA threshold is increased to £10,200 in the new tax year.

"Given the current low interest rates clearly equity ISAs have the advantage over cash ISAs even though savers will now be able to put £5,100 into cash ISAs compared with £3,600 in this tax year.

"It is a welcome boost for the ISA season which in previous years has hardly materialised in any real shape or form. We would urge all investors to consider making the most of their tax-free investment threshold this year and to consider increasing it in the new tax year."

Virgin Money's analysis shows income funds have been the big winners with contributions increasing by around 130% between 6 October last year and 5 January this year.

Its Investors Intentions Index shows advisers are most optimistic about the Emerging Markets and Far East shares.

Around 42% of advisers are optimistic about Emerging Markets - up from 32% three months ago - ahead of 26% who are optimistic about the Far East and 23% who are optimistic about UK shares. Optimism about the Far East has climbed from 22% while the UK has dropped from 30%.