Investors can now hold fractional shares within specific tax wrappers including Stocks and Shares Individual Savings Accounts (ISAs), Junior ISAs, and Lifetime ISAs. The new rules came into force on November 4, 2024 following a lengthy consultation period.
Commenting on fractional shares within ISAs before the rules came into effect, 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 $211 at the time of writing (roughly £162), 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.
What are the rules around holding fractional shares within an ISA?
While fractional shares can now be held within an ISA, HMRC also published regulations for ISA managers which must be met if they wish to offer this to customers. These rules include:
- The fractional share must be part of a whole share which is a qualifying investment for the purposes of an ISA. This can be a share in an investment trust or shares in a fund.
- The relevant whole share must be officially listed on a recognised stock exchange or admitted to trading on a recognised stock exchange either in the UK or the EEA
- The whole share must be listed in the ISA manager's name (or the name of their nominee)
There are also additional rules in place to protect the investor. These include ensuring that:
- The investor has beneficial ownership of the fractional share
- Transactions meet the general rules of investment i.e. the price of the fractional share must be in proportion to the price of the whole share if traded on the open market
- Transfers or withdrawals of fractional shares are actioned within thirty days
Platforms offering fractional shares will need to implement these rules to ensure they're in compliance with the latest regulations.
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
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