ISAs and differential shares

With fractional shares, rather than owning a share in a company, individuals own fractions of one or more shares. This could be useful, where, for example, a whole share would cost more than the £20,000 annual ISA subscription.

The emergence of fractional shares post-dates the ISA regulations. However, HMRC recently issued a definitive answer on the topic of differential shares in ISAs, by way of its tax-free savings newsletter published on 9 October 2023.

According to HMRC, a fraction of a share is not a share and therefore cannot be held in ISAs. ‘Shares’, as referred to in paragraph 7(2)(a) of the ISA Regulations, refers only to whole shares and not parts or derivatives thereof. A fraction of a share does not give the investor the same legal rights as a whole share does. Fractional shares could only qualify for inclusion in ISAs if the ISA Regulations were amended to allow them.

HMRC’s newsletter goes on to say that, 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.

HMRC says that any ISA managers who allow fractional shares to be purchased or held within their ISAs as a qualifying investment under Regulation 7(2)(a) should contact HMRC by email at

However, it appears that, this update has caused some controversy, with disagreement in some parts over HMRC’s interpretation of the consolidated version of The Individual Savings Account Regulations 1998 (SI 1998 No. 1870). According to AccountingWEB, Dan Neidle, a regular contributor to their site, has since “set out his own stall”, as to why he believes that HMRC is probably wrong. Please see here.

Whether such an investment is in fact legal or not, since HMRC has published its own view, it’s unlikely that an investor would want to take a chance on including fractional shares in their ISA in the knowledge that this would be open to challenge.

It’s quite possible that HMRC will seek to settle the matter via the courts. However, that will take time, and that might mean investors facing uncertainty regarding their entitlement to tax relief on the fractional shares in question until some time late in the current decade.

Or, maybe, Jeremy Hunt will look to resolve this once and for all, in the upcoming Autumn Statement, by arranging for some suitable wording to be included in the current ISA regulations, either to make it clear that that fractional shares can’t be held in an ISA, or, perhaps, to allow fractional shares to be held in an ISA.

Please look out for information on any developments regarding this in our Autumn Statement analysis which will be published on Techlink on the evening of 22 November 2023.

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to