Policy paper

Individual Savings Account and Child Trust Funds (Amendment No 2) — Regulations 2024

Published 15 October 2024

Who is likely to be affected

Savers with Individual Savings Accounts (ISA) or Child Trust Funds (CTF).

Banks, building societies and other financial institutions who provide or manage these accounts or investments.   

General description of the measure

This measure will allow certain ‘fractional interests’ in shares (also known as ‘fractional shares) to be held in a Stocks and Shares ISA and CTF.

This measure will also require ISA managers to obtain a National Insurance number on new ISA applications from all investors who are eligible to have one.

In addition, the measure will update the rules relating to the transfer of current year subscriptions from one ISA manager to another.

Policy objective

The measure supports savers and ensures that children and their families continue to have access to suitable tax-advantaged savings products that meet their needs.  

Extending the Stocks and Shares ISA and CTF to accommodate certain fractional interests will allow investors at all income levels to save and invest in ways which best meet their needs.

Requiring a National Insurance number to be provided where an individual is eligible for one will:

• help to identify individuals opening an ISA
• enable improved HMRC compliance activity around ISA subscription limits
• ensure consistency with the requirement for Lifetime ISAs

Background to the measure

At Autumn Statement 2023, the government announced that it intended to permit certain fractional share contracts to be eligible ISA investments.

Detailed proposal

Operative date

Those elements of the measure which relate to fractional interests and transfers between managers will have effect from 5 November 2024.

The element which relates to National Insurance numbers will have effect from 6 April 2025.

Current law

Rules for ISAs are set out in the Individual Savings Account Regulations 1998 (SI 1998/1870) (ISA Regulations), which are made under powers in:

• Chapter 3 of Part 6 of the Income Tax (Trading and Other Income) Act 2005
• section 151 of the Taxation of Chargeable Gains Act 1992

Rules for CTF are set out in the Child Trust Funds Regulations 2014 (SI 1450/2004) (CTF Regulations) which are made under the Child Trust Funds Act 2004.

The ISA and CTF Regulations specify the types of investments eligible to be held in an account and the conditions which must be satisfied for the account to qualify as an ISA or CTF. One such condition is that the investor is provided with the right to vote and attend shareholder meetings. Another condition is that investments are sold or transacted at the open market price.

Other ISA regulations provide the rules on the information which:

• must be provided to open an account
• regulate the information which must be passed between ISA managers in relation to the transfer of an account

Proposed revisions

Fractional interests (also referred to as ‘fractional shares’) entitle investors to an interest in a portion of a share that is owned by a firm (usually a stockbroker), rather than a full share owned by themselves. Voting and other shareholder rights are not guaranteed for the fraction of the share.

The ISA and CTF Regulations will be amended to allow fractional interests in otherwise qualifying shares that are listed or traded on a recognised stock exchange (including listed or traded shares in funds) to be held in an ISA or CTF.

The Regulations will require ISA and CTF managers offering fractional interests to have contractual arrangements with their investors and will disapply the requirement relating to voting rights and shareholder meeting attendance.

The Regulations will also be amended to require ISA and CTF managers to:

• transact fractional interests proportionately to the open market price of the whole share
• retain custody of the relevant whole share in the same manner as they would retain custody of other ISA or CTF investments

The ISA Regulations will also be amended so that, where there is a partial transfer of a current year ISA subscription from one ISA manager to another, the transferring manager must only report subscription information to the receiving manager where no current year subscription remains with the transferring manager. This removes complexity for ISA managers who would otherwise need to identify and record specific funds relating to part of a subscription and ensures that HMRC continues to receive accurate reporting of ISA subscriptions.

The ISA Regulations will be amended to provide that where a new ISA application is made by an investor, the ISA manager must obtain a National Insurance number from the investor or confirm that the investor is not eligible to have a National Insurance number, before an account can be opened.

Summary of impacts

Exchequer impact (£ million)

2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029
Negligible	Negligible	Negligible	Negligible	Negligible	Negligible

This measure is expected to have a negligible impact on the Exchequer.

Economic impact

The measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

These measures will impact individuals who wish to invest in fractional interests in an ISA and would otherwise be prevented from doing so. Individuals will now be able save and invest in ways which best meet their needs.

These measures are not expected to impact on family formation, stability or breakdown. 

Individual’s customer experience is expected to stay the same because the change to permit certain fractional interests in ISAs doesn’t change any processes or tax admin obligations.

Individuals who are eligible for a National Insurance number but do not know it will need to obtain it before they are able to open a new ISA. This is in line with benefits claims and other Government services, and individuals can utilise existing online support and guidance where needed.

There are likely to be a very low number of UK individuals who would open an ISA who are not eligible for a National Insurance number (broadly) because they have never:

• worked
• been part of a child benefit claim
• applied for a student loan
• claimed a benefit

Those individuals will continue to be able to open an ISA once they have confirmed this to their chosen ISA manager.

Equalities impacts

It is not anticipated that there will be impacts on those in groups sharing protected characteristics.

Impact on business including civil society organisations

The measure will have a negligible impact on approximately 550 ISA and CTF managers, who, depending on their business model and regulatory permissions, may choose to offer fractional interests within their ISA or CTF products. 

The clarification of the rules relating to the transfer of current year subscriptions from one ISA manager to another is expected to have a negligible administrative impact on approximately 480 ISA managers.

One-off costs for ISA and CTF managers will include familiarisation with the changes to ensure they are compliant and changes to supporting business processes. Some ISA managers will be required to update their ISA application forms and processes where they are not compliant with the new National Insurance number requirements. There are expected to be negligible ongoing administrative costs where ISA managers confirm individuals who do not provide a National Insurance number when opening an ISA are not eligible for one.

Businesses’ customer experience is expected to remain the same as the change does not alter how businesses interact with HMRC.    

These measures are not expected to impact on civil society organisations.

Operational impact (£ million) (HMRC or other)

The overall additional costs for HMRC in implementing these changes are expected to be negligible. These are restricted to updating the ISA and CTF manager guidance and confirming the changes with the ISA and CTF industry.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

This measure will be kept under review through communication with affected taxpayers and the financial services industry.

Further advice

If you have any questions about this change, contact Claire Cornell Johnson by:

• telephone: 03000 200 3300
• email: savings.audit@hmrc.gov.uk

Declaration

Tulip Siddiq MP, Economic Secretary at His Majesty’s Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.