HMRC’s current stance is that fractional shares are not eligible for investment with an ISA. As such, when investors sell their shares, they may have to pay CGT on any profit made.
Katharine comments: “It seems unfair. I’m not sure why HMRC is worried about this when the Government is supposed to be encouraging share ownership and investment in business.”
Leaving investors uncertain about whether their portfolios are compliant or not could lead to a lack of enthusiasm for investment. This comes at a time when the Government has committed to opening up investment opportunities to all.
In terms of liabilities, if HMRC believes the ISA investment in fractional shares to be void, the investor could face Income Tax on dividends as well as the previously mentioned CGT on sale. A decision by HMRC on penalties could also take months, leaving investors in further doubt about their portfolios. HMRC could seek to recover tax (and interest) from previous years as well, depending on their stance. This all adds up, leading to what could potentially be a costly venture for individuals, and ultimately platforms such as Freetrade.
You can read Katharine’s comments in full on The Daily Mail here.
If you have any concerns about your tax position, please get in touch with Katharine here or a member of our Private Client team.