Question about US stock holdings: tax implications

[mrodent]

I am a UK taxpayer.

I have some US stock holdings in my ISA and SIPP portfolios. Specifically I am talking about Berkshire Hathaway. I have quite a bit of money in BH, and have had for many years now.

I wonder whether anyone has any knowledge about what happens if I were one day to sell any of these holdings? I just want to know whether the US Treasury will want to take a cut, i.e. impose some kind of tax on proceeds from any such sales, such as maybe capital gains tax.

I think that in the US tax-payers have a tax shelter setup similar to ISAs, but I can't remember the name. This obviously would not shelter my holdings from any applicable tax.

I was thinking of selling some of this stock just to see what happens. But maybe someone out there knows how this works for a UK taxpayer.

[SalvorHardin]

I am a UK taxpayer.

I have some US stock holdings in my ISA and SIPP portfolios. Specifically I am talking about Berkshire Hathaway. I have quite a bit of money in BH, and have had for many years now.

I wonder whether anyone has any knowledge about what happens if I were one day to sell any of these holdings? I just want to know whether the US Treasury will want to take a cut, i.e. impose some kind of tax on proceeds from any such sales, such as maybe capital gains tax.

I think that in the US tax-payers have a tax shelter setup similar to ISAs, but I can't remember the name. This obviously would not shelter my holdings from any applicable tax.

I was thinking of selling some of this stock just to see what happens. But maybe someone out there knows how this works for a UK taxpayer.

UK taxpayers don't pay American capital gains tax on the sale of American shares. Instead we pay UK capital gains tax on these capital gains (which won't apply to shares held in ISAs or SIPPs). We do get caught for American withholding tax on American dividends (30% or 15% if you've completed a W-8BEN form), which is deducted automatically so we receive 70% or 85% of the gross dividend.

One thing to watch out for is if you own shares in an American Limited Liability Partnership (LLP) or one of the other partnership structures. There are a few of these quoted on the NYSE. This opens a massive can of worms because dividends on LLPs are treated as American earnings as an interest in a partnership and you have to submit an American tax return (and pay tax).

[mrodent]

Thanks very much.

What you say about W-8BEN and dividends rings a bell. The last time I filled in one of these forms was about 3 years ago (when I last bought some BH stock) and I remember also registering the fact that as (famously) BH never pays dividends, this was good news for a UK taxpayer.

Obviously this is a fund holding stock in other companies, most of them US companies. I also thus remember wondering whether dividends paid by this BH-stock held stock could be subject to this "foreigners' withholding tax". I presume that it doesn't work like that: are you able to confirm?

So I'm fairly hopeful after your answer that I won't get any nasty shocks.

Even if some dividends were charged (on non-BH dividend-paying US holdings), it sounds like this withholding tax is applied automatically, at the time of the issue. Do you know when 15% is applied and when 30% is applied?

[Alaric]

Do you know when 15% is applied and when 30% is applied?

15% is when there's a valid W-8BEN. 30% is where the Broker has structured the nominee holdings so as to segregate the pension holdings (including SIPPs) and has done the necessary paperwork. Not all bother.

[mrodent]

Thanks. Not sure I understand that: if the broker can avoid 30% by "not bothering", why would they ever bother? ...

I just edited my last post to add another question:

Obviously this [BH] is a fund holding stock in other companies, most of them US companies. I also thus remember wondering whether dividends paid by this BH-held stock could be subject to this "foreigners' withholding tax" in my case (as a UK taxpayer). I presume that it doesn't work like that: are you able to confirm?

[Alaric]

Thanks. Not sure I understand that: if the broker can avoid 30% by "not bothering", why would they ever bother? ...

It's 15% with W-8BEN unless the Broker goes the extra mile and sets up two pools of holdings, one for pensions and one for the rest. The witholding tax rate on dividends is 30%, reduced to 15% with W-8BEN and 0% for W-8BEN and pensions.

Taxation of foreign dividends doesn't look through to underlying holdings. If Berkshire Hathaway retains all earnings, that's as far as it goes. Unlike a UK Investment Tax I don't think BH has any special tax treatment from the US authorities and certainly not the UK ones.

[SalvorHardin]

Obviously this is a fund holding stock in other companies, most of them US companies. I also thus remember wondering whether dividends paid by this BH-stock held stock could be subject to this "foreigners' withholding tax". I presume that it doesn't work like that: are you able to confirm?

So I'm fairly hopeful after your answer that I won't get any nasty shocks.

Even if some dividends were charged (on non-BH dividend-paying US holdings), it sounds like this withholding tax is applied automatically, at the time of the issue. Do you know when 15% is applied and when 30% is applied?

Berkshire Hathaway isn't a fund; it's an operating company. It does look like a fund, especially to journalists who only pay attention to the quoted company shareholdings. This is an important point because shareholders in American closed-end funds (their equivalent of investment trusts) are taxed upon gains realised within the fund, even if they are not distributed to shareholders.

British investors should avoid American closed-end funds like the plague (I believe that American mutual fund unitholders are similarly taxed upon realised gains).

If and when Berkshire Hathaway pays dividends, these will be subject to 15% or 30% withholding tax to foreign investors depending on whether you have completed a W-8BE form as Alaric said in earlier posts in this thread.

You shouldn't get any nasty shocks regarding Berkshire Hathaway. I've owned shares in Berkshire for almost 30 years, have never had to correspond with the American tax authorities and only had to pay UK Capital Gains Tax when I sold some shares.

[mrodent]

You shouldn't get any nasty shocks regarding Berkshire Hathaway. I've owned shares in Berkshire for almost 30 years, have never had to correspond with the American tax authorities and only had to pay UK Capital Gains Tax when I sold some shares.