As the new tax year approaches, an increasing number of investors have said they plan to make use of their ISA allowance to shield their savings from tax, the Association of Investment Companies (AIC) has claimed.

With the increased ISA allowance set to be rolled out to all savers – allowing up to £10,200 to be invested – from 6 April 2010, 72 per cent of investors – an increase of six per cent since last year – plan to use their allowance.

In addition, of those who are intending to invest in the forthcoming months, three quarters have said they will use their full allowance – investing an additional £3,000.

According to AIC’s latest Investor Confidence Index, this news is ‘not surprising’ given that almost half of investors – 45 per cent – see tax increases as the biggest threat to their finances in 2010, while one in five are expecting further tax increases after the election to affect their finances.

Commenting, Annabel Brodie-Smith, communications director at AIC said: “With a general election on the horizon, it’s clear that investors consider the prospect of tax changes to be the biggest threat to their finances. It’s not surprising that more investors are planning to use their ISA allowance this year to avoid the clutches of the taxman.”

In terms of ISA popularity, 27 per cent of investors intend to invest in stocks and shares, while a quarter have said they will hold both cash and stocks, and one in five investors plan to limit the risk to their capital by holding just cash.

However, despite more people looking to invest in stocks and shares ISAs rather than cash ISAs, the AIC has said that confidence amongst investors in the stock market has actually fallen with 40 per cent of investors saying they will increase their equity investments this year, compared to 50 per cent in the same period last year.

Acknowledging that investor confidence is “slightly down” on last year, Ms Brodie-Smith said: “Investors are now a bit more cautious having seen such an impressive market recovery.”

However, although investor confidence has taken a hit in the past 12 months, the number of investors turning to emerging market investments has more than doubled from six per cent in 2009 to 13 per cent this year, with Ms Brodie-Smith claiming this indicates “an increasing appetite for risk” amongst some investors.

© Fair Investment Company Ltd