HMRC Set To Allow Fractional Shares In ISAs

[LondonChris]

Financial media widely now reporting that HMRC is going to allow fractional shares within ISAs. HMRC said in a statement: “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.” The change may come into force as early as September 30 according to draft secondary legislation seen by the FT.

Doesn't impact me, but no doubt relevant to lots of younger investors on challenger trading platforms/apps - and in particular relevant for those with less cash to invest wanting to buy into US stocks which traditionally have always had higher share price denominations than UK/European stocks.

[stevensfo]

Financial media widely now reporting that HMRC is going to allow fractional shares within ISAs. HMRC said in a statement: “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.” The change may come into force as early as September 30 according to draft secondary legislation seen by the FT.

Doesn't impact me, but no doubt relevant to lots of younger investors on challenger trading platforms/apps - and in particular relevant for those with less cash to invest wanting to buy into US stocks which traditionally have always had higher share price denominations than UK/European stocks.

Halifax Sharebuilder has been allowing fractional shares since at least 1998, so I don't understand why there was a problem with ISAs. As a low-paid lab technician, this allowed me to set everything to 'reinvest dividends' even though I was adding small sums each month.

Steve

PS I still have my old Sharebuilder account but these days reserve it for all my very low or zero dividend growth shares only.

[Lootman]

Financial media widely now reporting that HMRC is going to allow fractional shares within ISAs. HMRC said in a statement: “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.” The change may come into force as early as September 30 according to draft secondary legislation seen by the FT.

Doesn't impact me, but no doubt relevant to lots of younger investors on challenger trading platforms/apps - and in particular relevant for those with less cash to invest wanting to buy into US stocks which traditionally have always had higher share price denominations than UK/European stocks

Halifax Sharebuilder has been allowing fractional shares since at least 1998, so I don't understand why there was a problem with ISAs. As a low-paid lab technician, this allowed me to set everything to 'reinvest dividends' even though I was adding small sums each month.

Yes, I would have thought that if your broker allows you to trade and hold fractional shares, then they could sit in an ISA. The taxman would not normally look at ISAs at that level of detail so would not know or care.

US shares have become better in recent years about doing stock splits (Tesla, Nvidia, Broadcom are recent examples) or issuing cheaper "B" shares (Berkshire Hathaway).

[SebsCat]

Halifax Sharebuilder has been allowing fractional shares since at least 1998, so I don't understand why there was a problem with ISAs. As a low-paid lab technician, this allowed me to set everything to 'reinvest dividends' even though I was adding small sums each month.

Yes, I would have thought that if your broker allows you to trade and hold fractional shares, then they could sit in an ISA. The taxman would not normally look at ISAs at that level of detail so would not know or care.

It's not up to the broker to determine what is a qualifying asset for an ISA - it's defined in legislation. HMRC had chosen to take a literal meaning of the wording which includes shares but not fractional shares - their argument was that a fractional share is not a share so could not be a qualifying asset according to the enacted legislation.

If fractional shares were found to be non-qualifying assets (which presumably would require an expensive High Court case to determine) then HMRC could pursue the ISA managers to reclaim tax that should have been paid and, potentially, also void any ISAs containing fractional shares. New legislation to make the situation clear makes sense.

[Lootman]

Yes, I would have thought that if your broker allows you to trade and hold fractional shares, then they could sit in an ISA. The taxman would not normally look at ISAs at that level of detail so would not know or care.

It's not up to the broker to determine what is a qualifying asset for an ISA - it's defined in legislation. HMRC had chosen to take a literal meaning of the wording which includes shares but not fractional shares - their argument was that a fractional share is not a share so could not be a qualifying asset according to the enacted legislation.

If fractional shares were found to be non-qualifying assets (which presumably would require an expensive High Court case to determine) then HMRC could pursue the ISA managers to reclaim tax that should have been paid and, potentially, also void any ISAs containing fractional shares. New legislation to make the situation clear makes sense.

It seems to me that this issue merely requires clarification rather than legislation. After all, open-ended funds have always been traded and held in units and decimal places, and they happily sit in ISAs. By definition fractional shares are low value positions and so the amounts of tax involved would be trivial, even on a literal interpretation.

I did have an ISA share cease to be ISA-eligible and it was moved out of my ISA by my broker. It did not void my ISA, which would be a drastic over-reaction.

[doug2500]

Who owns the left over fraction once all the holders of fractions are aggregated? Presumably brokers just have to suck it up and own a fraction of one share in each stock?

[paulnumbers]

Who owns the left over fraction once all the holders of fractions are aggregated? Presumably brokers just have to suck it up and own a fraction of one share in each stock?

Yes I'm sure that's the case, a very minor "cost" of doing business, which on average probably has a positive effect as the market generally rises

[stevensfo]

Who owns the left over fraction once all the holders of fractions are aggregated? Presumably brokers just have to suck it up and own a fraction of one share in each stock?

If fractional shares were available to clients at all hours every day then it would probably become annoyingly complicated. But I don't think they will allow that. My Halifax Sharebuilder had its 'Regular Buying date' about four times a month. So on that date, I assume they would have huge orders for shares all pooled together in their nominee account where the fraction left over is a tiny insignificant % of the total.

Hope I've explained that correctly.

Steve

[EthicsGradient]

Who owns the left over fraction once all the holders of fractions are aggregated? Presumably brokers just have to suck it up and own a fraction of one share in each stock?

If fractional shares were available to clients at all hours every day then it would probably become annoyingly complicated. But I don't think they will allow that. My Halifax Sharebuilder had its 'Regular Buying date' about four times a month. So on that date, I assume they would have huge orders for shares all pooled together in their nominee account where the fraction left over is a tiny insignificant % of the total.

Hope I've explained that correctly.

Steve

Yes, some platforms restrict which shares are available as regular purchases, so they they can decrease or eliminate the buying costs, and it makes sense they may say "fractional purchases only for the regular buying dates and those fairly popular ones", so that they're left holding less than one over a month at most, which they may be willing to risk to attract customers.

The SPDR S&P 500 ETF is currently the cheapest (by OCF) S&P500 ETF listed at Monevator, but about £420 per share, which makes regular purchases rather lumpy. Customers would love to get fractions of that (though the larger the share price, the more the platform is likely to get stuck with each month).