Guidance

Tax-free savings newsletter 14 — October 2024

Published 23 October 2024

1. Fractional Interests in Individual Savings Accounts (ISAs) and Child Trust Funds (CTFs)

The Individual Savings Account (ISA) and Child Trust Fund (CTF) regulations were laid before Parliament on 14 October 2024 to allow certain fractional interests to be bought in a:

• Stocks and Shares ISA
• Junior ISA (JISA)
• CTF

The new regulations take effect from 4 November 2024.

For the purposes of the ISA regulations, a ‘fractional interest’ is a contractual arrangement between you (the ISA manager) and the investor, that allows them to invest in a proportion of a whole share that is held by you or your nominee.  

Fractional interests of a whole share are eligible to be held in a Stocks and Shares ISA, Junior ISA, or a Lifetime ISA if they meet the following criteria:

• the fractional interest is held by an ISA manager approved to offer Stocks and Shares ISAs, Junior ISAs or Lifetime ISAs
• the relevant whole share, including shares in an investment trust and shares in a fund, must be a qualifying investment for the purposes of the ISA regulations
• the relevant whole share is either:
  • officially listed on a recognised stock exchange
  • admitted to trading on a recognised stock exchange in the UK or the European Economic Area (EEA)
• the whole share is held in your name or the name of your nominee — you cannot delegate below the level of nominee
• the fractional interest contractual arrangement is between you and the investor and set out within the terms and conditions of the account
• the investor has beneficial ownership of the fractional interest
• transactions in fractional interests meet the requirements of the general investment rules — the price of the fractional interest is the proportion of the price of the whole share, which is the price that might be reasonably expected if traded on the open market
• transfers or withdrawals of fractional interests are actioned within 30 days

For fractional interests, the general conditions regarding annual general meetings and voting rights do not apply. If an investor holds multiple fractional interests amounting to a relevant whole share, then the investor rights relating to a whole share will apply.

If there are changes to the whole share, you should follow the guidance in the ‘Changes to investments held in a stocks and shares ISA’ section in Stocks and Shares ISA investments for ISA managers.

ISA manager guidance will be updated to include this information in the Stocks and Shares ISA investments for ISA managers section.

2. Individual Savings Account (ISA) amendment to regulations

2.1 Partial transfers of current year subscriptions

The ISA regulations have been amended to clarify that, where there is a transfer of part of a current year’s subscription and no current year’s subscriptions remain with the transferor after that transfer, the transferring ISA manager is not required to provide details of current year subscriptions to the receiving ISA manager on the transfer history form.

Partial transfers of current year subscriptions should be reported as ‘A’ on the transfer history form. Where any current year subscriptions remain with the transferring ISA manager, that manager is expected to report subscriptions made to them in that tax year in their annual returns to HMRC.

The new manager should report all current year subscriptions they receive from the investor after the transfer date.

2.2 National Insurance number

From 6 April 2025, new ISAs accounts must contain the investor’s National Insurance number unless the investor is ineligible to have one. This is a change to previous ISA requirements where the ISA manager could rely on a declaration from the investor that they did not have one.

A National Insurance number is a nine-digit reference made up of letters and numbers in the format ‘QQ123456A’.

ISA managers are expected to validate the National Insurance number is in the correct alpha-numeric format and the final character is either A, B, C or D.

Individuals should be able to find their National Insurance number on their:

• payslip
• P60
• letters about tax, pensions and benefits

They can also find it by going to GOV.UK and searching ‘find your National Insurance number’ or by downloading the HMRC app.

An individual will have, or is eligible to apply for, a National Insurance number if they are over the age of 16 and planning to:

• work and have a UK National Insurance liability
• claim benefits
• apply for a student loan
• pay Class 3 voluntary National Insurance contributions

3. Individual Savings Account (ISA) manager guidance

3.1 Repair of an ISA account where the overall subscription has exceeded the legislative limit

We have updated our How to close, void or repair an ISA guidance for invalid ISA accounts where the investor has exceeded the overall subscription limit.

Current year subscriptions

If you find out, either from the investor or by reviewing your records, that the investor has exceeded the overall ISA subscription limit in the current year, you must:

• advise the investor of the excess
• tell the investor that the excess and any related gains will be removed to correct the error

The investor should provide you with instructions on which subscriptions should be removed.

The valid current year investments in a repaired ISA account may keep their tax exemption.

Previous year subscriptions

If the oversubscription occurred in previous years, you should tell the investor that HMRC will contact them in due course. The investor will have been given the opportunity to query the information provided to HMRC. If there are ISAs to be repaired, HMRC will:

• issue a notice of discovery to you
• inform the investor of the action to be taken by you

You should not repair an investor error without a notice of discovery. The date of the notice is the date of repair of the invalid ISA.

For previous years, all investments in a repairable ISA lose their tax exemption from the date of the first invalid subscription up to the date of repair (this could include current year investments). Up to this date, the repairable ISA is effectively treated in the same way as a void ISA. Subscriptions to a repaired ISA for years other than that covered by the notice of discovery are not affected by that notice.

For all Lifetime ISA repairs, the manager must contact HMRC.

3.2 Additional permitted subscriptions

The surviving spouse or civil partner is entitled to the higher additional permitted subscription value. If the transferred allowance was based on the date of death value, and the continuing account of the deceased investor was not closed, this could result in a lower value than the spouse or civil partner is entitled to when the estate is finalised.

To resolve this, the manager holding the continuing account of the deceased investor, may need to provide information on the higher additional permitted subscription allowance to the new manager once the account is closed.

4. European Economic Area (EEA) Undertakings for Collective Investment in Transferable Securities (UCITS) and the Overseas Funds Regime (OFR)

To qualify for an ISA or Child Trust Fund, EEA UCITS must be recognised schemes under Financial Services and Markets Act 2000 (FSMA).

Funds in the Temporary Marketing Permissions Regime (TMPR) meet this requirement.

If a scheme does not seek access through the OFR before the closure of the Temporary Marketing Permissions Regime, or if its application is refused, it cannot:

• qualify (or continue to qualify) for inclusion in a Stocks and Shares ISA or CTF
• continue to be marketed to UK retail consumers

ISA and CTF managers are reminded of the need to apply for OFR recognition if they wish to offer (or continue to offer) EEA UCITS in their ISA or CTF products once the transition period has passed.

5. Individual Savings Account (ISA) digitalisation of ISA Reporting

We told you in tax-free savings newsletter 11 that we will be working with ISA managers to deliver digitalisation of ISA reporting following the government announcement at Autumn Statement 2023.

In order to engage with ISA managers, we have established the digitalisation of ISAs collaboration forum. Topics discussed to date include:

• reporting frequency
• early process maps
• IT delivery schedules
• technical specifications

We are using feedback from these discussions to shape the requirements for reporting.

We are currently reviewing the forum structure to understand how best to engage with ISA managers.

If you would like to work with us, and receive invites and information from the digitalisation of ISAs collaboration forums, you can email: isadigitalisation@hmrc.gov.uk.