Fractional shares will be allowed within Individual Savings Accounts (ISAs), following an HMRC decision to drop the ban. The idea of allowing some fractional shares within ISAs was announced during the 2023 Autumn Statement when the Conservative government at the time said it would look to permit "certain fractional shares contracts" within ISAs.
That said, following the Autumn Statement, HMRC reiterated its stance that it did not consider fractional shares as an eligible investment within an ISA. Investment platforms which currently offer fractional shares within ISAs were reminded of this at the time.
The new Labour government has since committed to allowing certain fractional shares within ISAs and is preparing to update UK law to reflect this. Ahead of this change, HMRC has decided to reverse its position and allow fractional shares within ISAs. While the rule change hasn't been officially written into law yet - and it is unclear exactly when this will happen - providers who already allow fractional shares will not be investigated.
HMRC said: “The government has committed to changing the ISA rules to allow certain fractional shares. Taking a pragmatic approach, we will not raise an assessment on managers or investors for fractional shares acquired before these changes are made”.
It's expected that the move to allow fractional shares within ISAs will boost investment in shares across the board. This is because many investors choose to invest via a Stocks & Shares ISA, allowing people to save up to £20,000 per year tax-free. The tax advantages will now carry over to fractional shares as well.
What are fractional shares?
A fractional share is a slice of a whole share. They allow investors who may not have the means to purchase a full share the opportunity to still own a part of a company. For example, instead of buying one whole Amazon share, which can be bought for approximately $175 at the time of writing (roughly £133), investors may instead choose to buy a fraction of an Amazon share for say $10, assuming their investment platform allows it.
The new rules will mean that investors can now hold fractional shares within their ISAs, meaning they can benefit from the tax-free advantages of an ISA, even if they can't invest in a full share right away.
That said, fractional shares are not available on the open market. As such, investors interested in investing in this way need to buy them via platforms which offer them. Not all investment platforms in the UK offer fractional shares. Major players like Hargreaves Lansdown and Interactive Investor, for example, don't offer them at all.
Where can I invest in fractional shares?
If you're interested in investing in fractional shares, you may want to take a look at providers like Freetrade, Plum and NuWealth which offer fractional shares among other assets. Freetrade*offers a flexible Stocks and Shares ISA, as well as a personal pension and a general investment account. Costs start from £5.99 per month if you want to invest within an ISA, and £11.99 per month if you want a pension too.
Plum* was voted the best UK Personal Finance App of 2023 in the British Bank Awards. Like Freetrade, it also offers the opportunity to invest within an ISA. It also has a range of savings products such as Cash ISAs with attractive interest rates.
NuWealth, previously Wombat, allows you to invest from just £10 with assets ranging from stocks and ETFs. Like Freetrade and Plum, it also offers an ISA as well as a Junior ISA.
These are just some of the options to think about if the recent rule changes have piqued your interest. That said, now that the rules are changing, providers that haven't offered fractional shares to date may rethink their offering moving forward. You can read more about this topic in our article on fractional shares and the best places to buy them.
If a link has an * beside it this means that it is an affiliated link. If you go via the link Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. The following link can be used if you do not wish to help Money to the Masses or take advantage of any exclusive offers – Freetrade, Plum
