The decision, welcomed by investment platforms, paves the way for investors to hold portions of shares in tax-free accounts, even before an expected change in the law by the UK government.

Previously, HMRC had stated that fractional shares, although offered by many UK investment trading apps, did not qualify for tax-free ISAs. This stance had been criticised for shutting out small investors from attractive stocks like Nvidia, Apple, Amazon, and Tesla, which often require hundreds of pounds to purchase a single share.

The reversal comes ahead of an anticipated change to the law, which could come into force as early as 30 September. The change was initially proposed by the previous Conservative government but was not implemented before the July general election, Financial Times reports.

HMRC’s decision has been praised by industry leaders. Viktor Nebehaj, chief executive of Freetrade, called it a “sensible resolution” that enables investors to build diversified portfolios and access a wider range of investments.

The move is also expected to channel more savings into investments, aligning with the government’s broader efforts to boost retirement pots by increasing access to stock markets.