Confused on charges for foreign shares

isayhello

Hi, I haven't used my isa allowance this year, I was thinking to use an account such as Freetrade for low cost dealing and was considering buying some US shares, I don't understand though if I can do this through a UK platform or whether I need to open an account with an American one? Also will I pay any extra costs for buying shares in a foreign company or am I paying extra taxes for dividends?

Thanks for any help am a bit new to this.

Voyager2002

There are plenty of British platforms that allow you to buy US-listed shares, but you cannot hold them in an ISA.

Presuming that you would be using pounds to buy these shares, your money would need to be converted into dollars, for which there will be a fee. And yes, you would pay US tax on the dividends, probably at 18 per cent.

You can get round most of these problems by using pounds in an ISA to invest in a UK-based Fund or Investment Trust that invests in US companies, so long as it holds the companies that interest you.

Another_Saver

Voyager2002 said:

There are plenty of British platforms that allow you to buy US-listed shares, but you cannot hold them in an ISA.

Presuming that you would be using pounds to buy these shares, your money would need to be converted into dollars, for which there will be a fee. And yes, you would pay US tax on the dividends, probably at 18 per cent.

You can get round most of these problems by using pounds in an ISA to invest in a UK-based Fund or Investment Trust that invests in US companies, so long as it holds the companies that interest you.

I hold Berkshire Hathaway and Tesla in an iWeb ISA...

bowlhead99

isayhello said:

Hi, I haven't used my isa allowance this year, I was thinking to use an account such as Freetrade for low cost dealing and was considering buying some US shares, I don't understand though if I can do this through a UK platform or whether I need to open an account with an American one? Also will I pay any extra costs for buying shares in a foreign company or am I paying extra taxes for dividends?

An ISA is a tax efficient type of savings or investment account offered by a registered UK ISA manager. Opening an account with an American platform will not help (even if they would take UK resident customers) because they are not going to offer UK ISAs. So, you'd use a UK platform.

A UK resident will pay 15% US tax on US dividends received which will be deducted before you get them. There is no UK tax to pay if you're using an ISA. Your stockbroker/ platform will give you a 'W-8BEN' or equivalent form to fill out to declare your UK resident status to ensure you only suffer 15% withholding tax instead of the 30% which would be paid by someone who hadn't properly declared their status.

There are a few platforms that charge a premium for dealing in foreign shares instead of UK shares, but this will be shown on the fees and charges price list. You can't hold US dollar cash in an ISA, so each time you buy or sell a share or receive dividends the platform will need to convert your pounds into dollars to buy the stock or convert your dollars back into pounds after selling the stock or getting dividends.

Usually there is an FX commission for doing this which will be less than you'd pay for travel money at an airport bureau de change, but more than the banks would pay when buying and selling currency directly between themselves.

Voyager2002 said:

There are plenty of British platforms that allow you to buy US-listed shares, but you cannot hold them in an ISA.

That's simply not the case. In an ISA, shares are qualifying investments if:

• they’re issued by a company that is incorporated anywhere in the world and
• they’re:
  • either officially listed on a recognised stock exchange
  • or are admitted to trading on a recognised stock exchange in the EEA

You can hold shares but not futures, share options or warrants (though that's no different whether the company is UK listed or US listed).

More details at
https://www.gov.uk/guidance/stocks-and-shares-investments-for-isa-managers#shareinv

I've had foreign shares in my UK ISAs on various different platforms over the years.

isayhello

Thanks @bowlhead99 - so from my understanding, the ISA wrapper means I have to use a UK platform but within that I can buy individual foreign shares, except I will have to pay the fx fees when buying/selling. If I receive dividends can't they just be reinvested into the account so I could avoid fees then?

If the ISA limit is 20k, can I have a mix of items in this, so maybe 10k on an ETF and the other 10k in individual shares? is this possible? Do you have any platform recommendations as you seem to know this area well.

bowlhead99

isayhello said:

Thanks @bowlhead99 - so from my understanding, the ISA wrapper means I have to use a UK platform but within that I can buy individual foreign shares, except I will have to pay the fx fees when buying/selling. If I receive dividends can't they just be reinvested into the account so I could avoid fees then?

If you receive dividends, the proceeds will be paid to your account. If you'd then like to buy shares with that money, and it's enough to buy the shares you want, the platform or stockbroker can go and spend the money on buying some more shares for you on the stock exchange, but there's no option of simply having extra shares magically appear in your account without the platform / broker having to do some work, so it's generally not automatic and free.

If the ISA limit is 20k, can I have a mix of items in this, so maybe 10k on an ETF and the other 10k in individual shares? is this possible? 

Yes, that's quite normal

 Do you have any platform recommendations 

Most of my ISA money is at AJ Bell Youinvest as I also have a pension with them holding a mix of shares, ETFs and open ended funds. For UK shares and some ETFs they have a 'regular investing' feature where shares can be bought on a monthly basis at £1.50 per trade, but it doesn't cover foreign stocks, which cost a tenner per trade unless you are doing a large number of trades a month. FX commission is 1%. They also charge 0.25% of your account balance per year up to a cap of £30.

If you don't need open-ended funds and will only buy shares and ETFs, IG.com is probably a better choice if you'll be buying a lot of US shares (https://www.ig.com/uk/investments/isa/share-dealing ). Their dealing for US stocks is £10 a trade (£8 for UK shares and ETFs) but if you have done 3+ in the previous calendar month the trading fee drops to £0 for US stocks and £3 for UK. Their FX commission is 0.5% which is cheaper than most of the mainstream UK platforms.

A newer entrant to the market with app-only trading is Freetrade (https://freetrade.io/isa ), who cover all the popular shares on US and UK markets but not any other foreign countries. Their 'thing' is that you just pay £3 a month for the ISA and trading is free (other than 0.45% for FX); for US shares you can also buy fractional shares so you can just say you want £200 of Alphabet or Amazon instead of needing to buy a whole one share for $1500 or $3000. They then split your ownership of the share with other customers.

Freetrade are a newer entrant to the market and not profitable, and it would be a bit of a pain of they went bust and you had to wait for an administrator to pick through their business and transfer your shares to another platform before you could access them again; especially due to them using fractional shares which most other UK brokers don't handle. Whereas AJ Bell and IG are much bigger and have been making profits for years. Still, they have a good community following and are trying to be an innovator so good luck to them. I have a non-ISA account with them with a few thousand in it, but do my more serious investing with AJ Bell.

AnotherJoe

Voyager2002 said:

There are plenty of British platforms that allow you to buy US-listed shares, but you cannot hold them in an ISA.

Presuming that you would be using pounds to buy these shares, your money would need to be converted into dollars, for which there will be a fee. And yes, you would pay US tax on the dividends, probably at 18 per cent.

You can get round most of these problems by using pounds in an ISA to invest in a UK-based Fund or Investment Trust that invests in US companies, so long as it holds the companies that interest you.

Completely wrong. I hold many US shares in my HL ISA.

isayhello

Thanks @bowlhead99 I was thinking to go for one of the free app options. There are also a few other names that are out, do you have a real worry about using them? AJ Bell seem good but have higher charges.

Thrugelmir

isayhello said:

Thanks @bowlhead99 I was thinking to go for one of the free app options. There are also a few other names that are out, do you have a real worry about using them? AJ Bell seem good but have higher charges.

Bottom line is that you get the service you pay for. I use X-O, the service has always been exemplary when I've required person to person contact. 

bowlhead99

isayhello said:

Thanks @bowlhead99 I was thinking to go for one of the free app options. There are also a few other names that are out, do you have a real worry about using them? AJ Bell seem good but have higher charges.

I'm using AJ Bell as I want a more comprehensive service than the other two I mentioned.  The major 'free' app one that offers an ISA is Trading212. I'm generally reluctant to put a lot of money with someone where I'm not paying them anything for the service I use and reliant on them making profits from other parts of their business to stay in business. Trading212 have only been around a few years and make their profits to support the free trading and custody service in the 'real stocks and ETFs' and ISA services from their CFD trading operation where they have a banner '76% of retail investor accounts lose money when trading CFDs with this provider.'

There are obviously lots of other ones available but you wanted my recommendations so I mentioned what I mainly use and a couple of other names that I would endorse. There are loads of brokers and platforms out there although some of the popular ones here are not great for what you want, e.g. Interactive Investor have fixed fees so expensive for a small account, x-o.co.uk are cheap but don't cover foreign markets, etc.

Voyager2002

AnotherJoe said:

Voyager2002 said:

There are plenty of British platforms that allow you to buy US-listed shares, but you cannot hold them in an ISA.

Completely wrong. I hold many US shares in my HL ISA.

Thank you for the correction. I was relaying what I had been told by Interactive Investor: maybe it is time for me to change platforms.