As part of the chancellor’s shake-up of individual savings accounts (ISA), savers will now be able to hold certain fractional shares as part of their £20,000 yearly allowance.
Fractional shares are popular in the US and amongst those on trading apps because they allow investors to own a small part of a high-value stock. This means they don’t have to fork out hundreds to build a portfolio of big names.
They were already sold in the UK on trading platforms like Moneybox and Trading 212 but there was some debate earlier this year as to whether fractional shares should be allowed in stocks and shares ISAs.
Only last month, HM Revenue and Customs stated that a fraction of a share is not a share and therefore could not be held in ISAs. It also cautioned that fractional shares did not give investors the same legal rights as a whole share does.
Though no details have been given as to when savers will be able to have fractional shares in their ISAs, or in which companies they will be able to invest, experts have cheered the chancellor’s decision.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said that the inclusion of fractional shares in ISAs was a positive development that could encourage new investors into the UK stock market.
“Fractional share trading allows retail investors the opportunity to benefit from the growth of companies they might have otherwise have been priced out of,” Streeter explained, arguing that the opportunity may also encourage newcomers to “dip their toe” into investing.
Rachel Winter, a partner at financial advisory Killik & Co, said that fractional shares may also help investors limit their level of risk.
“Ideally, those looking to purchase individual shares should look to limit their risk level by spreading their money across a diversified range of different companies. This is currently difficult in practice because some shares are so highly priced,” Winter explained.
“NVIDIA, for example, has been the best-performing stock in the S&P 500 this year, and a single share costs $500. This puts it out of reach for those without large sums available to invest, but fractional shares would allow more individuals to purchase shares in exciting companies such as this.”