Cheap SIPP for US Shares

YellowSock

EdSwippet wrote: »

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!

Thanks for this clarification. Good to know that there is nothing I can do if the SIPP provider is not helping.

I had a positive email from @SIPP (one of the pension administrators that work with interactive brokers) saying that they will file the necessary tax forms so I shouldnt have to pay tax on dividends. So that sounds good so far.

In response to other comments:

Interactive Broker charges USD 0.005 per US share plus 0.2bps for FX!. That means that trading costs don't increase with number of different companies bought - only with total trade volume. If I crunch the numbers I end up with clearly lower closts than index trackers.

However my intention is not to track an index. If I wanted to track the S&P 500 I would for convinience also buy a tracker with low costs and low tracking error.

My idea for my SIPP is to pick shares from funds I like by looking at their 13F filings which can be seen online and which funds must submit every 3 months. Doing some research on these shares and picking more overperforming than underperforming shares together with extremly low costs (and all tax free till drawdown) should result in a good chance to outperform - increased or decreased by the exchange rate.

Thrugelmir

YellowSock wrote: »

Doing some research on these shares and picking more overperforming than underperforming shares together with extremly low costs (and all tax free till drawdown) should result in a good chance to outperform - increased or decreased by the exchange rate.

The US markets are highly researched. A reason why active fund managers struggle to outperform the market. Around 30% of US stocks are now held passively. Difficult to see what your research is going to uncover that others don't already know.

YellowSock

Thrugelmir wrote: »

The US markets are highly researched. A reason why active fund managers struggle to outperform the market. Around 30% of US stocks are now held passively. Difficult to see what your research is going to uncover that others don't already know.

I am not saying in any way that I am "better" than others - far from it.
I agree to what you say. Another very important reason for active funds failing to beat the index is their high fees. If everyone would be invested in funds then they as a whole are the index. So 50% of them would outperform and 50% under perform. Due to the high research state the difference between all of them will still be small. Adding now in the high fees and a good part of the 50% previous outperformer will under perform as well. As a private investor you don't pay yourself large salaries and trading costs can be kept very low.

So I think for example if you buy the big share holdings of Berkshire Hathaway (in which they don't trade in and out so often) then you might beat the index over the long term.
Maybe a bad example since Berkshire doesn't charge fees but the idea is basically picking good stock pickers without paying their fees and outperforming seems possible to me.

bostonerimus

EdSwippet wrote: »

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.

Nope I'm just questioning whether a SIPP with no employer contributions is a pension scheme under the DTA and that if for any reason 0% US tax rate or withholding isn't applied to capital gains and dividends then an attempt will have to be made to claim it back, even if it's rejected because it's not a pension, just a foreign trust. I was wrong in not making it clear that the SIPP provider will have to do that. Anyway it's all just an argument for avoiding the complexities of holding US domiciled shares in UK pensions when there are UK domiciled options.

EdSwippet

bostonerimus wrote: »

Nope I'm just questioning whether a SIPP with no employer contributions is a pension scheme under the DTA ...

From HMRC:

UK tax exempt pension schemes will also be entitled to zero, provided that the dividends in question are not derived from the carrying on of a business, directly or indirectly, by the pension scheme and that more than 50% of the beneficiaries, members or participants of the scheme are individuals who are residents of either the UK or the US (Article 10(3)(b) and Article 23(2)(e)).

No mention here of 'source of funds' or similar.

bostonerimus

EdSwippet wrote: »

From HMRC:

No mention here of 'source of funds' or similar.

It's the IRS opinion that matters. The OP must find a SIPP provider that is getting 0% for US dividends and capital inside a SIPP. It looks like H&L will do that for US domiciled ETFs and shares and probably lots of other places will too.

EdSwippet

bostonerimus wrote: »

It's the IRS opinion that matters.

Can you cite one that disagrees with HMRC's? If not, please drop this aspect of your responses.

justnotheralias

Yellowsock - thanks for putting up this thread - I found out today interactive investor wanted £375 to do a £25k cable fx, hence stumbling upon this thread tonight has been very interesting and informative. If you can keep us posted on your progress or PM me would be useful to compare notes.
FYG I've used Terry Smiths Fundsmith for my exposure for the past year and done happily. Ticker is FUQUIT (I'm not joking). His recent book was a good digestable read. Its beaten the index and he has exposure to ~30 shares.
The Interactive Brokers Platform is pretty comprehensive however I have to pay for the majority of my market access - US is cheap but Nasdaq EUR live prices were £120 a month!

YellowSock

justnotheralias - I've changed today 100k+ EUR into GBP (sold EURGBP) for £3.50 in a freshly setup Interactive Broker account outside of a SIPP - saving me around 800 EUR compared to transferwise. Amazing rates. (sounds like I am rich but this was an exception).

I am a big fan of Terry Smith. I've watched all his youtube videos. I wasn't aware that he had written another book though - thanks for the hint. Called "Celebrating Five Years of Investing in Decades of Success: Articles Anthology 2010-2015" in case someone wants to google it.

I hope I get away with no live prices. You must be a very active trader if you find this worth paying.

bostonerimus

EdSwippet wrote: »

Can you cite one that disagrees with HMRC's? If not, please drop this aspect of your responses.

There is no IRS opinion that I know of on the status of a SIPP. In IRS memos and opinons concerning SIPPs they always say something like

"If an employer pension scheme in the United Kingdom and an SIPP are both pension
schemes within the meaning of Article 3(1)(o).........."

Some professional tax experts believe that a SIPP requires at least 50% employer funding to be classed as a pension under the treaty and some don't. It would be a good question to ask UK SIPP providers. This is an issue for US citizens with SIPPs, but for UK citizens and residents I assume that UK SIPP providers that allow US ETFs and shares inside their SIPPS have done all the required legal work, file the W-8BENs and get the 0% treaty rate because they are going to have to answer the IRS questions if there are issues.