Fractional shares ISA and HMRC

Reallyskates

Hi,
  I’ve just heard about HMRC saying that fractional shares are not allowed in an ISA.
  So, I’m rather worried. Like a few people are likely to be I suppose.

Tried googling but no concrete info found.

I have a couple of thousand in an ISA, I put money away each month and when I buy shares I buy by value, i.e. 100 pounds of share xyz, so my platform will then go away and buy 2.123456 or whatever of the stock.

My ISA provider has said as far as they are concerned fractional shares are allowed in an ISA but they are talking with HMRC so just have to wait and see.

My questions to those more familiar with these things are:
   1. If HMRC decide to formally define a share as a unit of one, are people with fractional shares likely to get fined ?

2. Are those fines likely to be high ? I’ve read about fines and I’m worried the fine could be more than my couple of thousand portfolio!

3. Can we be fined - if the isa allows this I assumed that it is allowed, so acted in good faith and not reported on a self assessment (had my first self assessment request for this tax year, have no idea what to do with it btw)

4. In my case my stocks as a whole are below the capital gains threshold and the dividends most certainly are - so can you inadvertently get into trouble even if below capital gains threshold ?

5. Should I just liquidate all my stocks now or leave them as they are ?

many thanks for any thoughts

Andy

frugalmacdugal

Hi,

all still very unclear, read HERE,

masonic

I'm glad this is finally getting some attention, as I've expressed concern about the status of fractional share ownership ever since the wave of free trading apps brought this feature to the masses. The other issue is around what happens should such a platform fail.

In answer to your questions:

Reallyskates said:
   1. If HMRC decide to formally define a share as a unit of one, are people with fractional shares likely to get fined ?

   2. Are those fines likely to be high ? I’ve read about fines and I’m worried the fine could be more than my couple of thousand portfolio!

No, there wouldn't be a fine levelled for the mere fact these fractional shares had been bought within the ISA, but the ISA could be considered void. It may be repaired to the extent that whole shares are treated as being ISA-wrapped and fractional shares treated as outside the ISA wrapper. This would be quite complicated to implement in practice though, so HMRC may have bitten off more than it can chew.

Reallyskates said:

3. Can we be fined - if the isa allows this I assumed that it is allowed, so acted in good faith and not reported on a self assessment (had my first self assessment request for this tax year, have no idea what to do with it btw)

I'm taking this question to mean 'are HMRC at liberty to fine consumers who have an unreported tax liability?' The answer is yes, but subject to CH160100: https://www.gov.uk/hmrc-internal-manuals/compliance-handbook/ch160100

Reallyskates said:

4. In my case my stocks as a whole are below the capital gains threshold and the dividends most certainly are - so can you inadvertently get into trouble even if below capital gains threshold ?

If you would have no tax liability on the equivalent unwrapped investments, then there is no obligation to declare anything to HMRC if you don't already complete a tax return. It is unlikely in my view that failing to declare trivial amounts of dividend income below your allowance on a tax return you did otherwise have to complete would lead to any action.

Reallyskates said:

5. Should I just liquidate all my stocks now or leave them as they are ?

Probably not. Personally, I don't like the idea of owning fractional shares because I like to avoid unnecessary complexity and uncertainty. This whole issue can be sidestepped by owning whole shares, or investing in open-ended funds whose fractional units have a clear status.

Reallyskates

Thank you both for the info, I’ve rounded up the fractional stocks to whole numbers and will make sure I only buy whole shares from now on

aroominyork

As a sidebar issue: Interactive Investor sells fractions of nominal gilts but only lets you sell whole units so fractions of a single unit sit in my GIA. I will be interested at next coupon date to see if I am paid half of 0.125% of less than one unit. I don't plan on declaring it on my self-assessment!

Doctor_Who

aroominyork said:

As a sidebar issue: Interactive Investor sells fractions of nominal gilts but only lets you sell whole units so fractions of a single unit sit in my GIA. I will be interested at next coupon date to see if I am paid half of 0.125% of less than one unit. I don't plan on declaring it on my self-assessment!

I assume at the redemption date these gilt fractions get redeemed and your GIA is credited?

GeoffTF

I do not believe that HMRC would take action against investors in these accounts. If you were to transfer to another broker who did not support fractional shares, your fractional shares would have to be sold to allow the transfer to take place. If HMRC successfully took action against the providers of these ISAs, I expect that they would have to sell your fractional shares and pay the proceeds into your ISA. That would have the same result as transferring your fractional shares ISA to a compliant ISA. According to the article linked above, the providers of these accounts have taken legal advice and been advised that fractional shares are legal within an ISA, so any HMRC action against them might not succeed anyway. In short, I would not lose any sleep over it.

aroominyork

Doctor_Who said:

aroominyork said:

As a sidebar issue: Interactive Investor sells fractions of nominal gilts but only lets you sell whole units so fractions of a single unit sit in my GIA. I will be interested at next coupon date to see if I am paid half of 0.125% of less than one unit. I don't plan on declaring it on my self-assessment!

I assume at the redemption date these gilt fractions get redeemed and your GIA is credited?

I hope so. I am desperate for half a Mars bar.

masonic

Update: https://www.ft.com/content/69f5f445-98b7-4911-8e36-d26bd2545344

"HM Revenue & Customs held a meeting with industry figures and Treasury officials last week, during which it maintained that this type of investment could not be held within a tax-free account despite platforms disputing this interpretation of the rules."

It appears platforms may be forced to treat the fractional shares as unwrapped investments as they are not ISA-eligible.

chockydavid1983

Is this just for if you own part of a share of an individual stock or is it also where you own part of a unit of an index fund? Or is it still unclear as it's still a developing story?

ColdIron

Shares. So companies, investment trusts and ETFs

Not OEICs, or other 'funds' denoted in units which have always been bought and sold in non-whole numbers