Tax on US Shares in the UK

Remay Villaester (May)
23.11.20
5 minute read

Many investors want to invest in shares and stocks listed overseas directly. But they express one common concern regarding the reduction of withholding taxes on the overall gain. Of course, no one wants extra administration when it comes to profits and gains.

However, this concern exists because many countries have withholding tax that investors pay in respect of direct investment held by non-citizens. This might sound bizarre to you, but tax authorities automatically deduct tax before an investor receives their dividends.

Double-taxation Agreements

Note that the UK has double-taxation agreements with several countries. This prevents investors in the UK from paying their tax twice for the same profits. The option also allows foreign inventors in the UK to claim relief on the overseas tax they have already paid.

This way, they can get back some or sometimes all of the tax they paid. That means the investors only pay their UK tax (not more) on the investments.

The United States and other countries like France charge foreign tax from private investors. These investors typically hold shares and stocks in their names or nominee accounts with a 30% withholding tax directly.¹

Germany charges a 30% withholding tax from investors who have shares in their names in the same line. The country charges withholding tax up to 26.375 percent from investors with nominee accounts.²

It is worth mentioning that these countries have double-taxation agreements with the United Kingdom. Because of this, investors in the UK can claim reimbursement. That is to say, the amount they pay the overseas UK tax authority is 15 percent, particularly on US shares.

TransferWise Multi-currency Account - for business without borders

transferwise borderless account

Get a multi-currency account

If you need to move some funds around to cover your tax liabilities or collect your Foreign Tax Credit Relief, TransferWise can save you over 60% on international transfer fees compared to most high street banks. It's also up to 19x cheaper than PayPal.

Old-world bank accounts only work properly in one country. They hold money only in one currency. And it gets expensive when you try to use them across borders. TransferWise's new Multi-currency accounts solve all of this.

Now you can send, receive and organise your money internationally, without crazy fees or even-crazier exchange rates – just a small, fair charge when your money moves between currencies.

US Dividend and Tax Treatment in the UK

As an investor, you can claim back tax from the UK tax authority after it deducts tax. Keep in mind that claiming your tax back after-tax authority withholds may require you to respond to many questions regarding the number of US shares you hold. The questions may also include the amount of dividends and the tax deducted with documentary proof.

  • For instance, if you have invested in a company listed in the US (that applies 30 percent of withholding tax), it will pay you dividends up to £1,000. It incurs a tax of approximately £300 and leaves you with £700.³
  • If you have an annual £2,000 UK dividend allowance but have spent this on other dividends you received, the UK tax authority will tax £1,000 per year dividend's tax rate.⁴
  • It is,
    • 38.1 percent for the added-rate taxpayer
    • 32.5 percent for the high-rate taxpayer
    • 7.5 percent for a basic-rate taxpayer

Once you determine this, you have to claim the difference between two different amounts. The amount that was supposed to be deducted as per the contract rate of the country your dividends originated and default withholding.

After this, you, as a "taxman," have to send three claim form copies to UK HM Revenue & Customs. They will stamp the documents you can use to prove that you're a tax resident in the UK. The HMRC will keep one copy and ask you to send the remaining to the foreign country's tax authorities for further processing.

It might take 8 to 12 weeks to receive the money. Remember that each country has different forms and requirements. For instance, in France, the process requires Form 5000, whereas you need the W-8BEN form in the US. While some countries also ask investors to send a summary of dividends and shares, others request valid dividend vouchers.

Claiming before you receive dividends may help you avoid this lengthy process. You can also avoid paying withholding tax this way. All you have is to write to your shareholder company's registrar and request him to apply the actual treaty rate to your dividends.

However, finding a portfolio handler or registrar who accepts the request is easier said than done. It is because of the involvement of the administration.

Tax when Selling US Shares

If you're a UK resident selling your US share or stocks, there is a Capital gain tax you might have to pay on profits. Take a look at the investments and shares you might have to pay tax on:⁵

It is essential that you work out capital gains to determine whether they are taxable. Keep in mind that it depends if total gains exceed the capital gain tax allowance for the current tax year.

Conversely, if you give your US shares to your civil partner, charity, wife, or husband, you don't have to pay tax. Plus, you don't pay any Capital Gain Tax when disposing of;⁵

  • Shares you kept in a PEP or ISA
  • Qualifying Corporate Bond
  • Betting, lottery or pools winnings
  • United Kingdom's government gilts (Premium Bonds)
  • Shareholder shares (employee) - depending on the time you bought them

Summing Up

All in all, if you're a UK resident, you're entitled to an ISA. The ISA exempts or lets you off from dividend income and capital gains dividends arising in the ISA account. Typically, there is no withholding tax on capital gains. You get all your profit and gains (less applicable commission) that display on ii accounts. Withholding tax applies only to dividend income and is 30 percent from USA companies (15 percent if you file W-8BEN form).

However, if your US shares are in a non-ISA account (general investment), they will still be exempt from any capital gain tax if the gain is within your yearly exemption, which is not more than £12,000 per year (can increase after April). It is the same for your non-ISA shares and dividend income. However, it is tax-free up to £2,000 only.

Sources:

  1. France in The US blog post
  2. Deloitte - Corporate taxation - Germany
  3. International investor blog post
  4. gov.uk article
  5. gov.uk article

This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date.

TransferWise is the smart, new way to send money abroad.

Find out more

Tips, news and updates for your location