Question
What is the best way to invest in the foreign market and what are the tax charges?
If I were to buy international shares, is the dividend paid in pounds?Answer
The simplest way to invest in foreign markets is to use investment funds, such as unit/investment trusts or exchange traded funds (ETFs).
This saves you from having to research and buy shares in overseas markets and because they’re usually priced in pounds (including dividends) you don’t need to mess around with foreign currencies. Dividends and capital gains will also be treated as per UK investments provided the fund is based (domiciled) in the UK.
There are potential downsides. You’ll have to pay an annual management charge (of up to 1.5% or more) to the fund manager and there’s no guarantee he or she will do a better job than you. And unless the manager hedges currency exposure your investment will still be affected by currency movements. But on the whole funds remain the most sensible way for most investors to access foreign markets.
If you’re concerned about a fund manager doing a bad job then consider a fund which simply tracks an overseas stockmarket index – a few unit trusts do this and there’s plenty of ETFs to choose from.
Buying shares in larger US and European stockmarkets is pretty straightforward as several UK online stockbrokers offer this facility. The stockbroker will handle currency conversion, so payments (including dividends) will enter and leave your trading account in pounds, although they’ll normally add a margin of around 0.5% every time they change currency.
Dividends paid by foreign companies are often subject to a withholding tax in the country they’re listed. These vary but often tend to be about 15%, which is the amount HMRC will usually let you offset against UK tax owed on the dividends (10% for 20% taxpayers and 32.5% for 40% taxpayers) – view the list of HMRC double taxation agreement rates here. However, some countries do have higher withholding tax rates, which can mean losing out where it’s not straightforward to reclaim the tax from the overseas tax authority (France is a problem, as is the US if you don’t complete a W-8BEN form).
Capital gains tax is usually the same as UK shares, as it’s rare for overseas withholding taxes to apply to gains on shares.
Whichever route you choose, just be careful to ensure you understand what you are buying. For example, the spread of investment between different markets, sectors and companies can vary widely on funds that invest globally. Some also have UK exposure which risks duplicating investments you may already own.
What is the best way to invest in the foreign market and what are the tax charges?
If I were to buy international shares, is the dividend paid in pounds?Answer
The simplest way to invest in foreign markets is to use investment funds, such as unit/investment trusts or exchange traded funds (ETFs).
This saves you from having to research and buy shares in overseas markets and because they’re usually priced in pounds (including dividends) you don’t need to mess around with foreign currencies. Dividends and capital gains will also be treated as per UK investments provided the fund is based (domiciled) in the UK.
There are potential downsides. You’ll have to pay an annual management charge (of up to 1.5% or more) to the fund manager and there’s no guarantee he or she will do a better job than you. And unless the manager hedges currency exposure your investment will still be affected by currency movements. But on the whole funds remain the most sensible way for most investors to access foreign markets.
If you’re concerned about a fund manager doing a bad job then consider a fund which simply tracks an overseas stockmarket index – a few unit trusts do this and there’s plenty of ETFs to choose from.
Buying shares in larger US and European stockmarkets is pretty straightforward as several UK online stockbrokers offer this facility. The stockbroker will handle currency conversion, so payments (including dividends) will enter and leave your trading account in pounds, although they’ll normally add a margin of around 0.5% every time they change currency.
Dividends paid by foreign companies are often subject to a withholding tax in the country they’re listed. These vary but often tend to be about 15%, which is the amount HMRC will usually let you offset against UK tax owed on the dividends (10% for 20% taxpayers and 32.5% for 40% taxpayers) – view the list of HMRC double taxation agreement rates here. However, some countries do have higher withholding tax rates, which can mean losing out where it’s not straightforward to reclaim the tax from the overseas tax authority (France is a problem, as is the US if you don’t complete a W-8BEN form).
Capital gains tax is usually the same as UK shares, as it’s rare for overseas withholding taxes to apply to gains on shares.
Whichever route you choose, just be careful to ensure you understand what you are buying. For example, the spread of investment between different markets, sectors and companies can vary widely on funds that invest globally. Some also have UK exposure which risks duplicating investments you may already own.
Read this Q and A at http://www.candidmoney.com/questions/question251.aspx
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