HMRC have set out its interpretation that only whole shares (rather than fractions of shares) can be held in an ISA. HMRC’s Tax-free savings newsletter 9(October 2023) confirms HMRC’s view that a fraction of a share is not a share, and therefore cannot be held in an ISA.
This view is based on the definition of qualifying shares in the ISA Regulations, SI 1998/1870, reg 7, which HMRC says ‘refers only to whole shares and not parts or derivatives thereof’.
HMRC advise ISA managers who allow fractional shares to be purchased or held within their ISAs as a qualifying investment under reg 7(2)(a) to get in touch by email at savings.compliance@hmrc.gov.uk.
HMRC’s position is not universally accepted. Suggesting that ‘HMRC are probably wrong’, Tax Policy Associates argue that fractional shares are already permitted under the ISA regulations on the basis ‘that all shares held in an ISA are fractional interests’. This follows the rationale that, when an individual opens an ISA account and buys, say, 100 shares in X Plc, the account provider holds those 100 shares as part of its pooled account. Rather than 100 shares being labelled with the individual’s name, the investor owns a percentage of the total pool. For example, if the provider holds 100,000 X plc shares in its pooled account, the investor will own 0.1% of the pool. So, although the investor is treated as owning 100 shares, in legal terms they own a fraction.
HMRC have set out its interpretation that only whole shares (rather than fractions of shares) can be held in an ISA. HMRC’s Tax-free savings newsletter 9(October 2023) confirms HMRC’s view that a fraction of a share is not a share, and therefore cannot be held in an ISA.
This view is based on the definition of qualifying shares in the ISA Regulations, SI 1998/1870, reg 7, which HMRC says ‘refers only to whole shares and not parts or derivatives thereof’.
HMRC advise ISA managers who allow fractional shares to be purchased or held within their ISAs as a qualifying investment under reg 7(2)(a) to get in touch by email at savings.compliance@hmrc.gov.uk.
HMRC’s position is not universally accepted. Suggesting that ‘HMRC are probably wrong’, Tax Policy Associates argue that fractional shares are already permitted under the ISA regulations on the basis ‘that all shares held in an ISA are fractional interests’. This follows the rationale that, when an individual opens an ISA account and buys, say, 100 shares in X Plc, the account provider holds those 100 shares as part of its pooled account. Rather than 100 shares being labelled with the individual’s name, the investor owns a percentage of the total pool. For example, if the provider holds 100,000 X plc shares in its pooled account, the investor will own 0.1% of the pool. So, although the investor is treated as owning 100 shares, in legal terms they own a fraction.
