It is now incredibly easy to buy overseas shares on investment platforms. This, plus the attention-grabbing performance of US growth companies in recent years, and greater levels of liquidity, mean that many of you are very likely to be familiar with the ins and outs of international share dealing.
Others will be less familiar, or prefer to rely on funds for their foreign exposure. But some in this group may now be thinking about snapping up share bargains across the water, and others might be entertaining the idea of direct overseas shareholdings because they are investors in Aim-traded Abcam, which is swapping its dual Nasdaq/Aim listing for life as a single-listed entity in the US.
Little of the detail is known yet – the company says it will continue to consult with shareholders on this proposal in the coming weeks with the intention to put it to shareholder approval at a general meeting called for that purpose later this year. But there are a couple of additional complications worth knowing about, whichever US shares you find yourself interested in.
The first is foreign exchange. Changes in the dollar/pound exchange rate will obviously affect the value of your US direct shareholdings so this could be an additional factor to consider when timing your purchases and sales.
Although brokers do not generally charge higher dealing fees for overseas trades, you will be charged a forex fee. At Hargreaves Lansdown the charge depends on the value of your deal, and will cost a maximum of 1 per cent per deal.
Although interactive investor allows clients to hold foreign currency in their trading account in readiness for dealing or to convert from sterling at the time they place their trade (you can’t hold foreign currency in an Isa, you must switch into the currency at the time of the trade), foreign exchange fees apply in both cases. They start at 1.5 per cent on transactions up to £24,999, with the lowest fee of 0.25 per cent applying on transactions of £600k to £999,999 – the maximum electronic transaction size.
As mentioned, dealing charges are generally the same as for UK-listed shares, which means HL’s maximum online dealing fee to buy and sell US shares is £11.95 per trade.
If you have an account with interactive investor, its deal offering one free trade per month can be used to buy US shares. Otherwise each deal costs £7.99.
Taxation is the other factor to consider with overseas shares, although this is not usually a problem with US shareholdings as your broker is certain to plonk a W-8 BEN form in front of you to save you from having up to 30 per cent tax deducted from your US dividends. Completing the form will reduce this tax to 15 per cent. Shares held in Sipps can receive the gross dividend in full, meaning no W-8 BEN form is required in such cases – although not every platform permits overseas shares to be held in Sipps.
Outside of Sipps, brokers need to have a Q1 status with the US tax authorities so they can instruct that full US withholding tax (charged at 30 per cent) should not be deducted for UK shareholders in Isas and ordinary trading accounts. Although you must declare dividends (and taxable realised gains) on overseas shares in your tax return, you should not have to pay tax twice where withholding tax has already been applied.
