Can I invest in US shares tax-free through a stocks and shares ISA?

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Hello
I have a stocks and shares ISA and have previously considered investing in US shares.
Up until now, I've avoided doing so because I opted for simplicity and decided against completing a W-8BEN form.
However, I'd like to look into this further now.
Can US shares be bought through a stocks and shares ISA and, if so, would I be subject to any taxes further down the line or would the ISA ensure it remained completely tax-free?
Thanks
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  • Reed_Richards
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    FDa65rdk said:
    Can US shares be bought through a stocks and shares ISA 
    Yes.
    FDa65rdk said:
     if so, would I be subject to any taxes further down the line or would the ISA ensure it remained completely tax-free?

    No, it would be free of UK taxes but any taxes imposed in the US would still apply.  You would still need to complete a W-8BEN form and you would have to pay a withholding tax on share dividends.  The ISA would protect your shares from any Capital Gains Tax liability.
    Reed
  • masonic
    masonic Posts: 23,525 Forumite
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    edited 31 December 2022 at 10:38PM
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    If you want maximum tax sheltering for US shares, then a SIPP can provide this as it is a recognised retirement vehicle in the US, whereas an ISA has no special status. A W8-BEN is worthwhile for any account, as it halves the withholding taxes on unwrapped or ISA and removes them completely for pensions.
  • FDa65rdk
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    FDa65rdk said:
    Can US shares be bought through a stocks and shares ISA 
    Yes.
    FDa65rdk said:
     if so, would I be subject to any taxes further down the line or would the ISA ensure it remained completely tax-free?

    No, it would be free of UK taxes but any taxes imposed in the US would still apply.  You would still need to complete a W-8BEN form and you would have to pay a withholding tax on share dividends.  The ISA would protect your shares from any Capital Gains Tax liability.

    That's great, thanks.
    So would the only tax due (which I think is 15%) be on income from share dividends?
    If so, does that mean that for every $100 invested in shares with an annual dividend of 3%, the total annual tax due would be $100 x 15% x 3% i.e. 45 cents.
    Is that right?
  • FDa65rdk
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    masonic said:
    If you want maximum tax sheltering for US shares, then a SIPP can provide this as it is a recognised retirement vehicle in the US, whereas an ISA has no special status. A W8-BEN is worthwhile for any account, as it halves the withholding taxes on unwrapped or ISA and removes them completely for pensions.

    Thanks.
    So does this mean that there would be no tax on US share dividends held in a SIPP but in an ISA it would be 15%?
    Unfortunately, I don't know much about SIPP's but isn't capital gains tax due on a SIPP, something that is not due with an ISA?
    If so, isn't the capital gains tax on a SIPP likely to outweigh the dividend tax on an ISA?
  • Reed_Richards
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    Shares held in either an ISA or a SIPP are not subject to Capital Gains Tax.  You can contribute to a SIPP out of your income before tax but "withdrawals" from a SIPP are taxed as income.  Withdrawals from an ISA are not taxed.

    FDa65rdk said:
    If so, does that mean that for every $100 invested in shares with an annual dividend of 3%, the total annual tax due would be $100 x 15% x 3% i.e. 45 cents.
    Is that right?
    Yes, that's correct provided you have completed the W-8BEN so your rate of withholding tax is 15%.
      
    Reed
  • FDa65rdk
    FDa65rdk Posts: 71 Forumite
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    Shares held in either an ISA or a SIPP are not subject to Capital Gains Tax.  You can contribute to a SIPP out of your income before tax but "withdrawals" from a SIPP are taxed as income.  Withdrawals from an ISA are not taxed.
      
    Thanks and apologies in advance for all the questions!
    Does that mean that tax will have to be paid on any funds from a SIPP that you want to use, rather than leaving it untouched?

    I've done a bit of digging online:
    Is it correct that the first 25% of the funds that are withdrawn is not taxed and any amount over that is taxed in the same way as with income tax?
    Is there a period of time that has to elapse before another withdrawal can be made where the first 25% is not taxed?
  • Reed_Richards
    Reed_Richards Posts: 4,209 Forumite
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    SIPP = Self-Invested Personal Pension (a bit of topic for the ISA board).  You cannot usually make any withdrawals at all until you reach age 55, and that age is due to increase in future.  As soon as you make a withdrawal, 75% of the total pension is put into another pot and any money withdrawn from this "drawdown pot" is taxed as income.  Therefore:

    FDa65rdk said:
    Is it correct that the first 25% of the funds that are withdrawn is not taxed and any amount over that is taxed in the same way as with income tax?

    Yes.
    FDa65rdk said:

    Is there a period of time that has to elapse before another withdrawal can be made where the first 25% is not taxed?
    No, that's not the way it works.  You don't have to withdraw the full 25% tax-free sum all at once but it's a one-off.



              
    Reed
  • Albermarle
    Albermarle Posts: 22,596 Forumite
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    You need to research pensions as a separate topic, away from your original question.
    Pensions: Everything you need to know for retirement - MSE (moneysavingexpert.com)

    Do you not have a current pension? related to your employment ?
  • FDa65rdk
    FDa65rdk Posts: 71 Forumite
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    edited 1 January 2023 at 6:42PM
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    FDa65rdk said:

    Is there a period of time that has to elapse before another withdrawal can be made where the first 25% is not taxed?
    No, that's not the way it works.  You don't have to withdraw the full 25% tax-free sum all at once but it's a one-off.         
    Thanks.
    If somebody wanted to withdraw the funds from the SIPP in two separate stages, does that mean that the 25% is not taxed on the first withdrawal but it would be taxed on the second?
  • FDa65rdk
    FDa65rdk Posts: 71 Forumite
    First Anniversary First Post
    Options
    You need to research pensions as a separate topic, away from your original question.
    Pensions: Everything you need to know for retirement - MSE (moneysavingexpert.com)

    Do you not have a current pension? related to your employment ?

    Thanks.
    I have a teacher's pension which, to be honest, I haven't paid much attention to.
    I took a different role in education a few years ago and I need to check if the contributions go into the same pot as before.
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