HMRC have confirmed that new regulations will be issued allowing certain fractional shares to be held in an Individual Savings Account (ISA). This confirms a change in HMRC's advice from October last year when it said fractional shares could not be held in ISAs and Child Trust Funds (CTFs).
The clarification comes in HMRC’s September Tax-free Savings Newsletter 13 where it is reported that an industry consultation has recently closed on draft regulations.
Under the regulations, a ‘fractional interest’ or ‘fractional shares’, is a contractual arrangement between the ISA manager and the investor that allows the investor to invest in a proportion of a whole share that is held by the ISA manager or their nominee.
HMRC say:
- Any fractional interests acquired before the changes to the regulations may be retained within the account.
- Once the amended regulations come into force, all fractional interests held in ISAs or CTFs must meet the requirements of those amended regulations.
- Where any ‘fractional shares’ are not eligible under the new regulations, ISA managers will be required to remove them from their affected products.
Useful guides on this topic
HMRC say that ISAs can't hold fractional shares
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.
ISA guide
What is an ISA? What are the limits? How are ISAs taxed?
External link
HMRC’s September Tax-free Savings Newsletter 13
