Foreign dividends (W8-BEN, etc.): SIPP vs ISA

newlease

I will be buying some US shares. I can put these in either my ISA or SIPP, I use Youinvest which looks to offer W8-BEN which applies to both. Are there any reasons to choose one over the other? I have unused cash in both accounts which I will use to buy a mix of shares (US and UK) so the tax relief advantage of SIPP doesn't apply, I am simply asking in terms of dividend tax reduction which account is better to buy foreign shares.

Thanks,
Lisa

grey_gym_sock

US shares are better in the SIPP, because (at least with youinvest) then you get 0% US tax withheld on dividends (without even needing to fill in a W8-BEN). in the ISA, 15% is withheld, after filling in a W8-BEN.

Scarpacci

As grey gym sock says, a SIPP is better for US stocks as the United States recognizes the tax-free nature of a SIPP. They do not recognize ISAs, which means the best you can achieve is the lower 15% rate from filling in a W8-BEN. The only advantage then to putting US stocks in an ISA is avoiding CGT, which is the same for UK stocks or funds, et al.

If you have enough unwrapped investments to have a dividend tax liability, it could make sense to prioritize ISAs for UK stocks and keep the US stocks unwrapped. Either way, filling SIPPs and ISAs before unwrapped is generally still best.

Thrugelmir

grey_gym_sock wrote: »

US shares are better in the SIPP, because (at least with youinvest) then you get 0% US tax withheld on dividends (without even needing to fill in a W8-BEN).

How do the US authorities know that the shares are held within a SIPP without completing the form?

grey_gym_sock

Thrugelmir wrote: »

How do the US authorities know that the shares are held within a SIPP without completing the form?

i think because the US have granted youinvest some kind of status which allows them to assert certain investments are in pensions and be believed. at any rate, youinvest explicitly said that they didn't need the form completed, and tax is not withheld.

Thrugelmir

grey_gym_sock wrote: »

i think because the US have granted youinvest some kind of status which allows them to assert certain investments are in pensions and be believed. at any rate, youinvest explicitly said that they didn't need the form completed, and tax is not withheld.

Thanks. I did enquire with my provider a while back for a potential holding. In the end simply wasn't worth the hassle.

newlease

Thank you for the replies. This is very interesting and not at all what I was expecting. This is a good example of having searched before but not finding the answer, using some new keywords based on this thread I find articles like this: https://the-international-investor.com/investment-faq/reclaim-withholding-tax-foreign-dividends-isa-sipp

So when it comes to WHT, foreign stocks in an ISA get treated exactly the same as foreign stocks outside an ISA. Obviously, you may save on additional UK income tax and capital gains tax by using an ISA, but you don’t get an increased refund on the WHT over and above what you’d get anyway.


SIPPs are different. Under some tax treaties, there are special clauses for WHT on dividends paid into a pension scheme. One very important case is the UK-US DTA. Under this, dividend payments by US companies into a UK pension scheme should be taxed at a zero rate (see the HMRC manual and the treaty text [PDF]).


The standard WHT on US dividends is 30%. This is reduced to 15% under the UK-US DTA, which is the rate that will apply whether you hold US stocks outside or inside an ISA. But if you hold them in a SIPP and your SIPP adminstrator is thorough enough, you can get them paid gross of all tax.

and

However, depending on the way their nominee accounts are set up, not all brokers are able to pay SIPP dividends with zero WHT. So if you intend to hold US stocks in your SIPP and your US dividend income is large enough that the extra 15% could be handy, it’s worth checking whether your broker does. Brokers that can get US dividends paid gross into their SIPPs include AJ Bell Youinvest and Hargreaves Lansdown.


You should also be aware that not all brokers will handle W-8BEN forms for dealing accounts and ISAs – some firms consider the cost and admininstration involved not worthwhile (examples include Halifax/iWeb/Motley Fool and iDealing). If you use one of these, your dividends will be paid net of 30% WHT, so you should take this tax cost into account when deciding which broker is most cost-effective for you.

I only have SIPP and ISA, no unwrapped, and I treat them interchangeably so will in future put dividend paying US shares in the SIPP. AJ Bell's handling of the W8-BEN (unlike my previous provider Halifax) was one of the considerations in choosing them, I thought this would apply to both/either. If they do the "paperwork" for SIPPs automatically (without me filling in a W8-BEN) and get the 30% down to 0% instead of 15% then in my case there is no need to fill any form as I would only use the SIPP for US stocks and not the ISA.

I want to believe, but this all sounds too good (easy) to be true. Can any AJBell SIPP customers please confirm they're receiving dividends from US stocks tax free into their SIPP?

Thanks,
Lisa

bowlhead99

For US tax purposes, in respect of dividends being distributed to your ISA account, your ISA nominee provider who manages your holdings in an electronic account is merely an intermediary - and YOU are the beneficial owner.

The money is yours to do whatever you like with, when you get it. So, YOU as a beneficial owner must fill out a form which allows AJ Bell (or whatever other provider you use) to provide the payer with a withholding statement confirming that you want to claim the benefits of the US-UK tax treaty which allows the US payer to only withhold 15% instead of the standard rate of 30% from the dividends they pay outside the USA. If you don't declare your tax status using that form (or an equivalent), they must withhold the 30%.

However, with a SIPP, you personally are not the beneficial owner for US tax purposes. The dividends being sent from the US are not being sent to your account for you to do whatever you like with. They're being sent to AJBell Trustees as trustee of the AJBell Youinvest SIPP Pension Scheme, Lisa Newlease sub account. That's not your money. It's in a pension scheme. If you're old enough, you can ask the trustees to make a distribution to you and pay tax on it as necessary. If you die, it remains outside your estate and someone else gets it. But it's not 'yours' - you asked for it to be locked away from you and be held by the Trustees.

So, when dividends are being distributed from a US company to your SIPP, you don't need to fill out a W-8BEN; in fact, you can't, because you're not the beneficial owner of the dividends. The beneficial owner of the dividends is the pension scheme and you are not able to fill out the documentation representing the pension fund's status, because you are not a trustee or authorised signatory of the AJBell Scheme and can't make representations about its tax status as you don't have authority to do so.

Therefore, when AJBell provide a withholding certificate to the US company, they don't need anything from you. They already know the tax status of the beneficial owner of the holding: it's a UK pension scheme that was set up by them.

If you want to clarify what level of withholding tax is applied to a particular company in your ISA or SIPP portfolio and whether it would be different if it was in the other portfolio, just send a secure message to Youinvest when you're logged in. They usually reply to those messages in a reasonable timescale.

grey_gym_sock

newlease wrote: »

I want to believe, but this all sounds too good (easy) to be true. Can any AJBell SIPP customers please confirm they're receiving dividends from US stocks tax free into their SIPP?

yes, this works for me. the US stocks i hold are all US ETFs (though i don't think that makes any difference).

newlease

bowlhead99 wrote: »

For US tax purposes, in respect of dividends being distributed to your ISA account, your ISA nominee provider who manages your holdings in an electronic account is merely an intermediary - and YOU are the beneficial owner.

The money is yours to do whatever you like with, when you get it. So, YOU as a beneficial owner must fill out a form which allows AJ Bell (or whatever other provider you use) to provide the payer with a withholding statement confirming that you want to claim the benefits of the US-UK tax treaty which allows the US payer to only withhold 15% instead of the standard rate of 30% from the dividends they pay outside the USA. If you don't declare your tax status using that form (or an equivalent), they must withhold the 30%.

However, with a SIPP, you personally are not the beneficial owner for US tax purposes. The dividends being sent from the US are not being sent to your account for you to do whatever you like with. They're being sent to AJBell Trustees as trustee of the AJBell Youinvest SIPP Pension Scheme, Lisa Newlease sub account. That's not your money. It's in a pension scheme. If you're old enough, you can ask the trustees to make a distribution to you and pay tax on it as necessary. If you die, it remains outside your estate and someone else gets it. But it's not 'yours' - you asked for it to be locked away from you and be held by the Trustees.

So, when dividends are being distributed from a US company to your SIPP, you don't need to fill out a W-8BEN; in fact, you can't, because you're not the beneficial owner of the dividends. The beneficial owner of the dividends is the pension scheme and you are not able to fill out the documentation representing the pension fund's status, because you are not a trustee or authorised signatory of the AJBell Scheme and can't make representations about its tax status as you don't have authority to do so.

Therefore, when AJBell provide a withholding certificate to the US company, they don't need anything from you. They already know the tax status of the beneficial owner of the holding: it's a UK pension scheme that was set up by them.

If you want to clarify what level of withholding tax is applied to a particular company in your ISA or SIPP portfolio and whether it would be different if it was in the other portfolio, just send a secure message to Youinvest when you're logged in. They usually reply to those messages in a reasonable timescale.

Thank you, I follow your explanation on ownership differences between SIPP and ISA. Your message suggests a SIPP can, for all intents and purposes, either be at 0% or the full 30%. That is, if the provider is willing to do anything they would apply for DTA and get 0% rather than do a W8-BEN for 15%, presuming these are comparable efforts.

AJB's WB-BEN guide (https://www.youinvest.co.uk/sites/default/files/useful-forms/AJBYI_Guidelines_for_completion_of_Form_W8BEN.pdf) does mention this only applies to ISA and holding (ie not SIPP).

However HL, which was the other provider mentioned in the article, while confirming SIPP can be at 0% suggests the W8-BEN is required regardless: http://www.hl.co.uk/help/dealing/overseas-share-dealing/overseas-share-dealing/what-is-a-w-8ben

In fact, HL's language suggests they will not let you buy a US share without filling out the W8-BEN even if you're not bothered about the WHT.

Moreover, all these documents (including AJB) state the form "must" be filled in prior to a purchase. Ignoring the HL language (I'm with AJB anyway), if I buy some US shares now into my ISA and then fill in my W8-BEN, would I not get tax relief of 15% in future dividends? I had always understood the W8-BEN to be an optional form for tax relief but some of the language is almost implying it is a requirement.

newlease

grey_gym_sock wrote: »

yes, this works for me. the US stocks i hold are all US ETFs (though i don't think that makes any difference).

Thank you, it should work the same on ETF dividends.