Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
How to buy US shares: the key points to consider
Strong returns from the US market over the past decade have caught investors’ attention, particularly the performance of stocks like Tesla, Amazon and Apple. Fortunately, it’s easy to buy US shares, if you so wish. Many of the big stocks are available on UK investment platforms and you can buy and sell US shares between 2.30pm and 9pm UK-time.
There are some key points to consider when you are investing in US shares and this useful guide will come in handy if you are thinking about picking some of the stocks stateside.
FOREIGN EXCHANGE RATES
You must consider the impact that currency movements can have on your investment returns when buying overseas-listed stocks. Foreign exchange costs and how they are applied vary between investment platforms.
Typically, conversions from dollars into sterling are done on a deal-by-deal basis and when you look to trade an overseas stock on a UK platform your price will be quoted in sterling. Dividends also tend to be converted into sterling when they are received.
As with any exchange of currency, a charge can be incurred when converting from one to another.
AN IMPORTANT FORM TO COMPLETE
Most US shares can be held in a dealing account, ISA or SIPP (self-invested personal pension). For any account except a SIPP, you will need to complete a W-8BEN form to be able to invest in a US share. The form can typically be completed online.
Tax treaty arrangements between the US and UK mean that the usual 30% withholding tax on US dividends is halved to 15% for investments in a dealing account or ISA once a W-8BEN form is completed.
A W-8BEN form is not required for US investments held within a SIPP as the relevant US authority, the IRS, recognises SIPPs as a qualifying pension scheme and all qualifying US dividends and interest are automatically paid free of any withholding tax.
For example, if you bought £1,000 worth of shares for your ISA in US consumer electronics giant Apple and paid a typical £10 dealing charge and 1% foreign exchange charge, £20 or around 2% of the overall value of your investment would go on dealing costs.
The charge on converting your dividend into sterling might be around half the 1% forex costs paid when purchasing the shares. If you factor in a 15% withholding tax, the 22 cents dividend per share announced in Apple’s 2021 fourth quarter numbers would come to you at just under
19 cents per share once the charges and taxes had been applied.
However, if you held Apple in a SIPP you would net 21.9 cents per share (after accounting for the forex charge) as the withholding tax would not apply.