The HMRC have restated again in their latest savings newsletter that fractional shares are not allowed due to legal protections etc.
I presume this is in response to the responses we have sent using the freetrade template. They don’t appear to be backing down at all.
It seems to me that this mention in the newsletter confirms that ETFs are still allowed to use fractional shares, and while the restiction on them for single share ownership still seems arbitrary and unhelpful, those of us on InvestEngine or anywhere else where they invest in ETFs rather than single shares should not be directly impacted.
Where fractional shares are an underlying investment in a collective investment scheme or fund (for example an exchange traded fund) they are not subject to the same restrictions.
It does seem from that newsletter that they do not have the same contention with ETFs. Thanks @DarrenB for sharing, I didn’t know these newsletters existed.
@Adam.Lees, is InvestEngine’s opinion the same? Please can we have that full update you promised last week?
My read on that sentence in the newsletter is that the ETF manager can invest in fractional shares. It does not say that consumer investors can hold fractional shares of an ETF in an ISA.
I’m new to this, but when I invest in an ETF, I’m still buying shares, aren’t I? I’m buying share (or a fraction of a share) of that ETF?
Reading it again, I think you might be right.
Hi all, thanks again for your engagement on this issue. @JagerBomb your Petition has been circulated internally so you’ve got a few signatures from the team 
By way of an update this week, as it stands, HMRC are maintaining their position that fractional shares are not allowed within ISAs - there are however a two key things to note here:
The first is that consensus across the industry and the investing community wholeheartedly supports the fact that preventing fractional shares would have a detrimental impact on investors getting into investing and looking to grow their wealth for the future.
The second key thing is timing, HMRC were always very unlikely to change their stance prior to the Chancellor’s Autumn Statement in November.
The positive news though is that a review of the current ISA investing system is being carried out with the end-goal being simplification of ISAs and encouraging more investing - two goals that align perfectly with fractional investing. As mentioned previously, attached is our submission to the Treasury in support of this. However, until the November Statement, we’re unlikely to see any change in the messaging coming out of either side.
Our submission to the Treasury
We strongly believe fractional shares not only make investing more accessible, but facilitate easy, automated long-term investing for all investors, especially those just getting started and hope that, on a full consideration of the legal and tax analysis, HMRC agree that the better view is that fractional shares are permitted by the existing ISA rules. We do not see a public interest in HMRC pursuing a point that is marginal.
We are closely monitoring the situation and want to act in your best interests. HMRC have said that they would require the ISA Manager (InvestEngine) to settle any tax due for non-collective investment schemes. However, we do hope that the Chancellor agrees that fractional share ISAs should be exempt from tax, especially given the fact that when we launched InvestEngine, and in subsequent reviews, our service has always been given the green light to help you invest in this way by the regulator and relevant authorities.
Regarding the newsletter, as flagged by @DarrenB , we’ve reached out to HMRC for further clarification on their interpretation of fractional ETF investing.
We’ll let you know once we’ve heard more on this, and any related issues, however we’re unlikely to hear anything concrete until the Autumn Statement as mentioned above.
Thank you for the appreciation. I wanted to act as a ‘change agent’ and this was the best way for me to take this to task.
The 20 signatures limit has now been reached and I’m expecting the petion to be fully publicly available on Monday or Tuesday, at least according to the email I got.
It’s open to interpretation I think, in this context.
However, if HMRC do maintain their stance, it’s still gonna be a lot more viable build a decent ISA portfolio in “whole shares” via an ETF than individual stocks.
I mean, want a slice of Berkshire Hathaway, you’ll need a cool £400,000.
But want a slice of the whole S&P 500, including BH? You can do that for £30.
I think it’s going to be an interesting one.
The ETF providers can hold fractional shares inside their ETFs
For example if I buy one whole share of ISF iShares will hold (let’s say) 0.07 shares of a stock, let’s say AstraZeneca per whole share.
As far as I know, and from what I can ascertain and interpret so far, this is ok as it’s within the ETF itself.
I’d image from the same interpretation that HMRC would take a dim view if I bought 0.5 shares in either ISF or AstraZeneca.
Of course as it’s all ‘up in the air’ this is my sense of interpretation, nothing more, nothing less.
Also in the same article published by HMRC, they admit that the law could be changed.
See
I do see some sort of promise here. They by thier own admission are admitting it’s possible.
All we now need to do by multiple actions (my petition, the consultation, write to your MP etc) is to convince them that this is the best course of action.
In not for one minute saying it will be easy, but the light at the end of the tunnel is that it’s a possibility.
Dare to dream
Given their track record, I fully expect the autumn statement to promise legislation to sort this out properly, followed by no action to actually do so…
The excellent Monevator blog has recently picked up on this topic as well:
14/10 - Weekend reading: fractional infighting - Monevator
01/10 - Where to invest a small amount of money UK - Monevator - look for Fractional shares in an ISA SNAFU
Good Day
Well it’s finally here.
Anyone can sign it now.
Share it on Facebook Twitter and to all your friends who are into investing
Hi @Adam.Lees,
Did you hear back from HMRC regarding the treatment of ETFs?
Also, have you considered sharing Samantha’s petition with all of InvestEngine’s customers? I acknowledge though you probably don’t want to cause hysteria.
Hi @Menace-Dennis,
HMRC are yet to get back to us but we will follow up with them.
And yes, you’re right we have shared the petition internally however at this stage it would probably cause more confusion than necessary by circulating wider.
We have however recently doubled down on our ISA reform communications, which has generated some good media coverage in favour of ISA investors. We’ll continue to priorotise this in the build up to the Autumn Statement.
Didn’t catch the full statement but have seen others (eg. Martin Lewis) tweet that fractional shares have been allowed today by the Chancellor…
Not sure on the details yet, but intentions are there:
I just hope any clarity brings retrospective investments into it too. Not just the usual ‘from April next year’ etc.
I was hoping for something a bit more certain than an intention. They’d have to complete this consultation and implementation before they leave government next year.
There’s always a risk that it could be abandoned due to a change in government, but I think this should have cross-party support.
Hi @Adam.Lees, are there any updates on this? Have things been sorted with the treasury yet?
