Cheap SIPP for US Shares

YellowSock

I would like to invest my pension pot (£350,000) in US shares within a SIPP.

As a long term investor the fees that hit me most are:
FX rates and withholding tax on dividends.

FX rates that I saw are usually at least 1%. So to invest my pension pot that's at least £3,500, then the same amount to sell it and another 1-2% to reinvest dividends.

My understanding is that US dividends in a SIPP can be taxed at 30%, 15% or 0% depending on your provider. (see https://the-international-investor.com/investment-faq/reclaim-withholding-tax-foreign-dividends-isa-sipp). With an estimated dividend yield of 2.5% that's up to 350k*2.5%*30% = £2,625 every year to pay.

By far the cheapest SIPP for FX seems to be with Interactive Brokers. However to invest through them in a SIPP you need to use one of their approved SIPP administrators (https://www.interactivebrokers.co.uk/en/index.php?f=1228).
Does anyone know what the withholding tax is with any of these SIPP administrators? If the withholding tax is 15%/30% can I claim back the tax directly from interactive brokers or the US government (for shares in a SIPP which technically belong to the trustee and not to me)?

Any other hints on low cost SIPPs for US shares?
I found AJ Bell Youinvest with 1% FX, 1.5% Dividend reinvest and 0% withholding tax. That's could work out cheaper but by far the best so far would be if I could find a trustee for Interactive brokers with 0% withholding tax.

Thank you. I appreciate any hints.

Keep_pedalling

Why on earth would you want to put the lot in one market, and hold individual shares rather than funds which would be a far cheaper option?

Morphoton

Not sure if this company will do what you want but have a look at IG, FX is 0.3%.
https://www.ig.com/uk/investments/sipp
W-8 W-9 forms:
https://www.ig.com/uk/us-stocks

I have no experience of IG so please do your own research.

YellowSock

@Keep pedalling: No stamp duty, large caps operate globally. I also have non US shares outside the SIPP. Most funds underperform the market and the few that don't usually cost 1%+ TER (plus apparently hidden costs not included in TER) (£3,500 annually in my case) or are cheap index trackers. Last ones I like but I am hopeing for a tick higher return by doing more work. Key is to keep costs low and so far IB with 0% withholding tax seems to be the best option if I can get it.
I do have a currency risk though.

YellowSock

Morphoton wrote: »

Not sure if this company will do what you want but have a look at IG, FX is 0.3%.
https://www.ig.com/uk/investments/sipp
W-8 W-9 forms:
https://www.ig.com/uk/us-stocks

I have no experience of IG so please do your own research.

Thank you! 0.3% is quite low. I will have a look.

Thrugelmir

YellowSock wrote: »

Most funds underperform the market

That's because the vast majority of companies have done over the longer term. Only around 800 out of some 25,000 have beaten the market in fact. Then exclude Apple, Amazon, Facebook, Microsoft , Alphabet and Exxon. The picture looks far less rosy.

bostonerimus

Why don't you simply invest in a UK domiciled US equity index fund. If your SIPP is only funded by yourself it's arguable whether it's covered under the treaty tax exemptions, it might be treated similarly to an ISA because of the lack of employer contributions. Still, even if you can claim the DTA exemption you have to make sure it's set at 0% so you don't have to file the forms to claim it back from the IRS.

YellowSock

bostonerimus wrote: »

Why don't you simply invest in a UK domiciled US equity index fund. If your SIPP is only funded by yourself it's arguable whether it's covered under the treaty tax exemptions, it might be treated similarly to an ISA because of the lack of employer contributions. Still, even if you can claim the DTA exemption you have to make sure it's set at 0% so you don't have to file the forms to claim it back from the IRS.

Yes a very low cost US index tracker would be an option if I can't get low FX rates + 0% withholding tax on US dividends.
Index trackers score in my book with no-work/low cost/decent performance. But they do have a tracking error besides their advertised costs which adds up. There is after all an additional company who wants to earn money. US Shares bought via Interactive Brokers are still a lot cheaper than the best index tracker - including FX rates (and hopefully perform better with a lot more time spend on selection).

How a SIPP is funded should not matter. At least there is nothing mentioned in https://the-international-investor.com/investment-faq/reclaim-withholding-tax-foreign-dividends-isa-sipp or other sites I read on the internet.

bigadaj

YellowSock wrote: »

Yes a very low cost US index tracker would be an option if I can't get low FX rates + 0% withholding tax on US dividends.
Index trackers score in my book with no-work/low cost/decent performance. But they do have a tracking error besides their advertised costs which adds up. There is after all an additional company who wants to earn money. US Shares bought via Interactive Brokers are still a lot cheaper than the best index tracker - including FX rates (and hopefully perform better with a lot more time spend on selection).

How a SIPP is funded should not matter. At least there is nothing mentioned in https://the-international-investor.com/investment-faq/reclaim-withholding-tax-foreign-dividends-isa-sipp or other sites I read on the internet.

That's a heck of a bold statement.

You appear confident that you can trade with a relatively small amount in the largest and most efficient market in the world, apparently focussing on the largest companies within that market. And outperform multi billion dollar trackers with charges at a fraction of a per cent, if you do choose that option it would be very interesting to see the results.

IanSt

How many different companies are you planning to buy the shares of?

If low then there is a greater level of chance that you'll get an unfortunate wakening up one morning to find that a big chunk of your investments has taken a big drop due to some previously unseen problem with one of those limited number of companies.

If high then you'll have the additional costs of all the buying/selling you'll need to do - or is the idea that you'll buy once and hold forever?

It takes all sorts to make up the investing universe. I'd definitely be thinking of a low cost tracker but provided you've done your homework and are sure that this is for you then all power to your stock choosing.

EdSwippet

bostonerimus wrote: »

If your SIPP is only funded by yourself it's arguable whether it's covered under the treaty tax exemptions, it might be treated similarly to an ISA because of the lack of employer contributions. Still, even if you can claim the DTA exemption you have to make sure it's set at 0% so you don't have to file the forms to claim it back from the IRS.

It looks to me like you are confusing the US tax treatment of UK pensions for US citizens with the way dividends from US shares are passed over to UK pension schemes.

On the former, there is indeed debate among professionals over whether a SIPP is covered by the tax treaty or not with respect to US tax on US citizens or residents, and the debate revolves around how much of the pension balance comes from employer contributions and how much not. On the latter though, it is clear that pension schemes do not pay US withholding tax on dividends from US shares, and the source of funds here is completely irrelevant.

That said, not all SIPP providers will make the relevant treaty claim, so if going that route you have to pick your pension provider very carefully. The pension investor themselves cannot either file that individually with the US or receive a refund later on for overwithholding.

The SIPP provider has to take all the relevant actions here. If they do not then there is nothing you can do as an individual pension investor to remedy that. Except, of course, choosing a different SIPP provider!