ISA qualifying investments: including shares traded on small and medium-sized enterprise equity markets

The government announced at Autumn Statement 2012 that it would consult on expanding the list of qualifying investments for stocks and shares ISAs to include shares traded on small and medium-sized enterprise (SME) equity markets.

This policy could lead to an important capital injection for SME equity markets and encourage more investment in growing businesses. It will also improve choice for ISA investors by widening the range of shares eligible to be held in an ISA. Investors will still be free to choose the investments they hold in their ISA.

The consultation, which closed on 8 May 2013, proposed a change to the ISA rules to allow company shares admitted to trading on recognised stock exchanges within the European Economic Area (EEA) to be eligible to be held in a stocks and shares ISA. It asked for views on this proposed method of implementation and on possible alternative approaches.

The majority of respondents to the consultation broadly agreed with the government’s proposal. However, some respondents expressed concern about the potential impact of this proposal, or suggested alternative approaches. The government has carefully considered all of the responses it received during the consultation. On balance, it believes that its proposed approach remains the most appropriate: its reasons are set out in the summary of responses.

Next steps

The government will amend the ISA regulations in line with the consultation proposal. They will be amended to expand the range of ISA qualifying investments to include company shares admitted to trading on a recognised stock exchange in the EEA. This will meet the main objective of allowing company shares on SME equity markets into the scope of ISA qualifying investments. The government plans to introduce the necessary legislation in July 2013 and it is expected that this will take effect shortly after.