Foreign (US) share in my portfolio... tax treatment?

mrodent

I am a UK taxpayer and have some money invested with Berkshire Hathaway (the B shares, not the A shares).


This actually appears as a share in my portfolio, rather than a fund (BRK.B). I have some in an ISA account and some in a non-ISA account.


I would like to put more into this ... and am thinking of consolidating this in my ISA account (i.e. by selling other ISA funds to buy more BRK.B).



I just cannot work out how BRK.B is taxed for a UK taxpayer in this situation, whether with or without a tax wrapper (ISA). I.e. given that this is a US share. Can anyone explain or point me to a good guide? Thanks

Computer_Beginner

Did you complete a W8-Ben form?
Have you spoken to your platform?

EdSwippet

mrodent wrote: »

I would like to put more into this ... and am thinking of consolidating this in my ISA account (i.e. by selling other ISA funds to buy more BRK.B).

Although ISAs are generally best when it comes to simplicity, from a pure tax efficiency perspective the best place to hold BRK.B will probably be, in order: (a) a SIPP; (b) an unwrapped trading account; and (c) an ISA. See below for why.

mrodent wrote: »

I just cannot work out how BRK.B is taxed for a UK taxpayer in this situation, whether with or without a tax wrapper (ISA). I.e. given that this is a US share.

Provided you file a W-8BEN with your broker, you should receive dividends from US shares into both an unwrapped trading account and an ISA with 15% US tax deducted. The US cares nothing for the ISA wrapper, it just ignores it.

If you hold your shares in an unwrapped trading account you can claim up to that 15% against any UK tax liability you have on the same dividend with a 'foreign tax credit'. In an ISA however, you can't reclaim it because your UK tax here is zero. So the 15% US dividend withholding tax paid inside an ISA is a pure tax deadweight loss, then.

If you do not file a W-8BEN with your broker they will (probably) withhold 30% in US tax on dividends from US shares. You can get half of that back from the US if you file the right forms with the IRS -- that will get you back to the 15% treaty rate, but dealing with the IRS is rarely anything other than a complicated, painful and drawn-out process, so best avoided where possible. This method should work for both ISAs and unwrapped accounts, though note that if you have to go through this in an ISA the US tax refund you get back is effectively an ISA withdrawal, since it's paid to you directly, not back into your ISA.

The exception to all of this is holding US shares in a pension. Here the US/UK tax treaty provides for a 0% US tax rate on dividends. To get this though, you have to make sure that you have a W-8BEN on file and that you use a SIPP provider that claims this rate from the US. Not all do.

Reed_Richards

Do you file a tax return or are you taxed through PAYE? If it is the latter then you might be obliged to file a Self Assessment return if you held your share in an unwrapped trading account and got too much in dividends or made a significant capital gain. This requirement dose not arise if the shares were in a SIPP or ISA. So you might want to factor in the cost of filing a tax return, notional or otherwise.

Thrugelmir

BH doesn't pay dividends. Only capital gain to be considered.

EdSwippet

Thrugelmir wrote: »

BH doesn't pay dividends. Only capital gain to be considered.

Really?

Ah. In that case, ISA would probably be the optimal location. And thanks for the note.

mrodent

Thanks to all. This is really useful information. Sorry it took this long to reply.



My platform (Lloyds) where I hold these BRK.Bs did indeed require me to complete a W8-Ben before buying more of these shares.


I just confirmed that Warren Buffett does not issue dividends. Fantastic. So ideally in an ISA ... but if held in a non-ISA presumably the main problem is capital gains? Or are there any other problems which are specific to holding non-UK shares?

londoninvestor

mrodent wrote: »

Or are there any other problems which are specific to holding non-UK shares?

I think it's covered well here.

One thing to think about though - you say you've got some ISA and some non-ISA holdings, so presumably your portfolio is too big to entirely shelter in your ISA.

Would it be better to keep BRK.B outside the ISA, and focus your ISA on dividend-paying assets? Worth thinking about if you have over £2k of unwrapped dividend income.

Dazed_and_confused

Worth thinking about if you have over £2k of unwrapped dividend income.

Or are one of the people whose dividend income within the £2k dividend nil rate of tax actually attracts an increased tax liability for other reasons.

For some £2k of dividends adds £400 to their tax bill despite the dividends being taxed at 0%!!

londoninvestor

Dazed_and_confused wrote: »

Or are one of the people whose dividend income within the £2k dividend nil rate of tax actually attracts an increased tax liability for other reasons.

For some £2k of dividends adds £400 to their tax bill despite the dividends being taxed at 0%!!

Very good point.

Dazed_and_confused

Probably doesn't affect that many people but would be a nasty shock to those it does.

High Income Child Benefit Charge is another "tax" which increases due to dividends within the 0% rate, albeit the impact is dependent on the number of children involved/Child Benefit received.