Using US broker from UK, what about tax?

Hi all,

I'm looking to start trading and wanted to trade primarily US stocks, probably penny stocks. I live in the UK but I want to open an account with a US broker. This would seem to make more sense given that I then do not have to constantly consider potential exchange rates.

How does tax work in a situation such as this? I assume if I made any money I would have to pay income tax and possibly capital gains tax. Would this need to be declared yearly, even if the money stayed in the US brokers accounts?

Also how does tax work when shorting stocks? When I've read about capital gains tax with regards to stocks, it always mentions selling at a higher price than what you bought the stock at. Obviously when shorting stocks you've not actually bought then sold at a higher price, so how is the profits from this calculated with regards to tax?

I'd really appreciate if anyone can shed any light on these questions.

Thanks.

Hazeyuk said:

Hi all,

I'm looking to start trading and wanted to trade primarily US stocks, probably penny stocks. I live in the UK but I want to open an account with a US broker. This would seem to make more sense given that I then do not have to constantly consider potential exchange rates.

How does tax work in a situation such as this? I assume if I made any money I would have to pay income tax and possibly capital gains tax. Would this need to be declared yearly, even if the money stayed in the US brokers accounts?

Also how does tax work when shorting stocks? When I've read about capital gains tax with regards to stocks, it always mentions selling at a higher price than what you bought the stock at. Obviously when shorting stocks you've not actually bought then sold at a higher price, so how is the profits from this calculated with regards to tax?

I'd really appreciate if anyone can shed any light on these questions.

Thanks.

Click to expand...

Unless you had a separate legal entity such as those provided by LLCs and C corporations, then you cannot open a brokerage account in the US. They usually require a social security number for individuals or EIN for corporations.

The part that you mention about keeping your money in the USD, is problematic as it requires you to have a US bank account. Although there a few banks that allow certain foreigners to have a bank account, it requires a visit to the branch. I know Barclays Bank has multi-denominated currency bank accounts. If you open an account with IB on either side of the Atlantic, they allow for multi currency accounts.

My advice would be to use IB UK or form a Delaware LLC.

hhiusa said:

Unless you had a separate legal entity such as those provided by LLCs and C corporations, then you cannot open a brokerage account in the US. They usually require a social security number for individuals or EIN for corporations.

The part that you mention about keeping your money in the USD, is problematic as it requires you to have a US bank account. Although there a few banks that allow certain foreigners to have a bank account, it requires a visit to the branch. I know Barclays Bank has multi-denominated currency bank accounts. If you open an account with IB on either side of the Atlantic, they allow for multi currency accounts.

My advice would be to use IB UK or form a Delaware LLC.

Click to expand...

Thanks for the reply. I've looked at IB UK before, but as I'm just starting out I didn't really want to deposit the equivalent of 10k USD which is what they require as a minimum to open an account. I know I don't have to use it all if its in the account, but there is more chance of using it if it is there. Other than that IB look pretty good. I've looked over their exchange rate system, am I right in thinking I can exchange part of all of the money in my account into a specific currency ahead of time, so I don't have to worry about exchange rates on a per trade basis?

Hazeyuk said:

Thanks for the reply. I've looked at IB UK before, but as I'm just starting out I didn't really want to deposit the equivalent of 10k USD which is what they require as a minimum to open an account. I know I don't have to use it all if its in the account, but there is more chance of using it if it is there. Other than that IB look pretty good. I've looked over their exchange rate system, am I right in thinking I can exchange part of all of the money in my account into a specific currency ahead of time, so I don't have to worry about exchange rates on a per trade basis?

Click to expand...

While there are many brokers that offer forex trading at a low account minimum, they don't offer the ability to trade stocks as well. Even if you opened a brokerage account through IB with $10,000, they have a minimum requirement to trade forex of $25,000 per trade because they give you access to Interbank rates. If you place a forex trade under $25,000 in value, it is routed to an odd lot where it will not receive Interbank pricing. You will be charged at a rate about 1-3 ticks outside of the Interbank rates. I have not found a broker with better rates than them.

IB does have multicurrency accounts so you can convert part of your account into the dollar. Your account will be denominated in only one currency for you it will most likely be the pound. you can choose to have your account denominated in any currency you wish and it only takes one business day to change it. You can change it anytime you want as many times as you want. The currency that you choose to have your account denominated in will be how they charge you your market data fees. However, your account can hold as many different currencies as you like at once.

Since you reside in the UK, you're still faced with the problem of withdrawing your money that is now in the dollar into a bank account in the UK. if you do this without a multicurrency bank account like Barclays Bank you will be charged a 5% kiosk fee when the money is put into your account. Barclays Bank allows you to have a bank account denominated in both the pound and the dollar.