HMRC have issued 'Tax-free savings newsletter 9 - October 2023' which primarily clarifies their view that fractional shares cannot be held in ISAs. This means that taxpayers who hold investments in this way may have to sell their holdings and pay tax on any resulting gains.

The Individual Savings Account (ISA) is a tax-free savings account where it is held by a qualifying individual. In recent times many investors, and in particular younger taxpayers, have acquired fractional shares in well-known highly-priced companies through trading apps. They believed that they were buying an ISA-accepted investment and their income and gains would be tax-free. This has allowed these taxpayers to invest relatively small amounts in high-value companies where it would not otherwise be possible due to the high prices such shares commandeer.

Following a recent meeting between HMRC and the Treasury in which HMRC stated that they did not consider fractional shares to be shares, meaning that they cannot be held in an ISA, HMRC have now reiterated the point in their latest tax-free savings newsletter.

HMRC write, "Shares, as referred to in paragraph 7(2)(a) of the ISA Regulations, refers only to whole shares and not parts or derivatives thereof. A fraction of a share does not give the investor the same legal rights as a whole share does."

HMRC are asking ISA managers who have allowed fractional shares to be held within their ISAs as qualifying investments to contact them. It would appear that anyone who has invested funds in this way may now have to sell their holdings and pay tax on any gains accordingly.


It has been rumoured that the Chancellor may announce changes to ISAs in his Autumn Statement next month such as increasing the annual ISA allowance and perhaps he will need to add this issue to his list of matters to be dealt with.

Useful guides on this topic

ISA guide
What is an ISA? What are the limits? How are ISAs taxed?

ISA Help to Buy
The 'Help to Buy ISA' was launched on 1 December 2015. It was a new account aimed at helping first-time buyers to save up for the deposit on their home. It closed to new applicants in 2019.

ISA limits
What are the Individual Savings Account (ISA) investment limits? How much can I invest in an ISA each year?

External link

HMRC Tax-free savings newsletter 9 – October 2023 

The Individual Savings Account Regulations 1998

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