HMRC Investigating the ISA Eligibility of Fractional Shares
On the 19th of June, The Telegraph published an article that found the HMRC is investigating firms that allow investors to purchase fractional shares within the ISA tax wrapper. The report found that a number of retail investment platforms offer British investors the opportunity to purchase fractional shares within an ISA account. Currently the HMRC rules only recognise “full-shares” for tax purposes, meaning that some investors could be liable to pay capital gains tax on any fractional holdings.
We have previously advised clients that unlike full-shares, fractional shares are structured in a number of differing ways that enable an investor to gain proportional benefit akin to holding a share investment. Whilst it is the structuring of the fractional shares that provide the “fractional benefits”, we have found that this structure is not an eligible investment under the HMRC guidelines. Fractional shares have grown in popularity in both the US and the UK, as a way for retail investors to enjoy greater access to the market, but are intrinsically limited by technological restrictions on transferring assets. For firms offering fractional shares, there needs to be a clear disclosure with respect to the limitations and risks of investing, and where appropriate, and an understanding of the differences to “full-shares”.
