ISA reforms allowing fractional shares in the stocks and shares tax wrapper look set to continue regardless of who forms the next government.
The Treasury had been working on plans to let investors put fractional shares in their ISA since the end of 2023 but progress has been halted by the general election. Fractional shares have become popular among influencers and are used on newer trading platforms and apps such as Freetrade, eToro and InvestEngine. They let investors buy a more affordable portion of a stock rather than the whole thing.
This caused an issue with HMRC last year as it warned that ISA regulations don’t cover fractional shares despite some investment platforms letting users put them in the tax wrapper. The Treasury announced changes to this policy in the 2023 Autumn Statement and later confirmed in the 2024 Spring Budget document that it was working on this with the Financial Conduct Authority (FCA) and HMRC.
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MoneyWeek understands that HMRC was close to having a consultation ready before the general election but that is now on hold. The good news is that a Labour spokesperson confirmed to the Politico website that it would also support the change.
What are fractional shares?
Fractional shares break up a stock to let investor buy a portion of one rather than paying the full share price. They are popular in the US where share prices are particularly high and brokers argue that it lowers the barriers to entry for retail investors.
For example, investors can use fractional shares to buy a portion of the currently popular Nvidia stock without having to pay the full $1,209 share price. This means any returns are equivalent to how much they have invested.
Fractional shares have become more popular since the emergence of trading apps that let you buy and sell shares from your smartphone. But HMRC stepped in at the end of last year to warn that ISA regulations do not cover fractional shares, so they could only be held in a general investment account or pension.
Are fractional shares allowed in an ISA?
HMRC’s policy was set to be reversed after the Treasury listened to industry concerns.
The Treasury’s Spring Budget document said it is “working as quickly as possible to bring forward legislation by the end of the summer following detailed engagement with industry and the FCA.” But investors will need to wait for a new government to confirm and introduce the changes.
In the meantime, some providers are letting investors keep their fractional shares in an ISA but have stopped new purchases through the tax wrapper. "Fractional shares break down barriers for everyday savers to build a diversified portfolio and grow their wealth,” an industry source told MoneyWeek.
“This is an important clarification of the ISA rules that will make it as easy as possible for people to feel the benefits of saving and investing their money. This impactful change is on the goal line for the next government to tap in."
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