Isas sales on track to top £28bn

GORDON Brown's new tax on dividends paid into Isas has dented investor sentiment, but the financial services industry still expects investors to have chipped in more than £28bn into Isas this year by tonight's midnight deadline.

Banks, independent financial advisers and other equity-based Isa sellers are reporting a significant increase in demand compared with last year, when stock markets were at rock bottom.

Meanwhile, the prospect of increased interest rates is boosting interest in cash Isas - the other main category of the tax-efficient individual savings accounts.

Last year 12.5 million Isa accounts were opened, with £9.2bn put into equity-based Isas and £18.6bn put into cash Isas.

Equity-based Isa investment has fallen from a record £16bn in the year to April 2000 - the top of the bull market - when millions of inexperienced investors piled in.

Justin Modray of IFA Bestinvest said: 'In terms of volumes it's a lot better than last year, but still down on earlier years. The abolition of tax credits has turned some people off.' From tomorrow, Isa investors will no longer be allowed to claim a 10% tax credit on dividend income.

The impact of the Chancellor's move is modest - about £26 or £27 on a typical £7000 income fund. But Modray says: 'People are left with the impression that Isas are no longer tax-efficient.'

The destination of Isa equity investment is more balanced than in previous years. Clients poured money into technology funds in 2000 and corporate bond funds in 2002.