Buying US stocks and UK stamp duty?

[ipoppy]

Hi,
How do I pay stamp duty on US shares buying them from UK? I know its a 0.5% when you buying UK shares but I have spoke to my broker about US and they say its nothing to do with them and I should speak with Taxman. I have sign W-8BEN form to be exempt from US duty stamp.
Also what Capital Gains Tax (CGT) got to do with all this? Any profit from share price increase is taxable as well?
Thanks in advance.

 

[the blades]

Hi,
How do I pay stamp duty on US shares buying them from UK? I know its a 0.5% when you buying UK shares but I have spoke to my broker about US and they say its nothing to do with them and I should speak with Taxman. I have sign W-8BEN form to be exempt from US duty stamp.
Also what Capital Gains Tax (CGT) got to do with all this? Any profit from share price increase is taxable as well?
Thanks in advance.

you don't pay stamp duty on your US shares. The CGT is a UK thing. Your gains are still classed as being made here, so our rules apply. If you open 2 accounts (you and the wife?) you can make about £21K before you need to worry.


UTB

 

[timetotrade]

Hi ipoppy

As blades says, there is no stamp duty on US shares bought via UK broker.

The W8-BEN exempts you from paying income and capital gains tax to the US taxman, but you will still need to declare your income and capital gains/losses on the shares to the UK HMRC.

You need to declare income from your shares (eg dividends) on your self assessment return SA100.
Capital gains (as you say, the "profit from share price increase") are declared on form SA108.

You need to complete SA108 if:
* your total gains before losses exceed £10,100 (yr end 2010)
* you dispose of more than £40,400 of assets
* you wish to declare a capital loss (useful to offset against future gains)


You calculate the gain / loss on your US shares in GBP using the exchange rate applicable on the days you purchase and sell the shares.
Eg, let's say:
Buy 2000 shares in ABC on 1 Jul 09 @ USD 2.50 (exchange rate = 1.6479)
Sell 2000 shares in ABC on 1 Oct 09 @ USD 4.50 (exchange rate = 1.5986)
with commission of £12 on each transaction.

Disposal proceeds (2000 x 4.50 / 1.5986) = £5,630
Less:
Costs of disposal (commission) = £12
Acquisition costs = (2000 x 2.5 / 1.6479) + £12= £3,034 + £12 = £3,046
Capital Gain = £2,572

If you settle in USD there will also be currency gains/losses to consider when you transfer funds back to GBP.

Another consideration is that overseas share purchases/sales are subject to the same share identification rules as UK shares.

Hope that helps.

 

[ipoppy]

Hi ipoppy

As blades says, there is no stamp duty on US shares bought via UK broker.

The W8-BEN exempts you from paying income and capital gains tax to the US taxman, but you will still need to declare your income and capital gains/losses on the shares to the UK HMRC.

You need to declare income from your shares (eg dividends) on your self assessment return SA100.
Capital gains (as you say, the "profit from share price increase") are declared on form SA108.

You need to complete SA108 if:
* your total gains before losses exceed £10,100 (yr end 2010)
* you dispose of more than £40,400 of assets
* you wish to declare a capital loss (useful to offset against future gains)


You calculate the gain / loss on your US shares in GBP using the exchange rate applicable on the days you purchase and sell the shares.
Eg, let's say:
Buy 2000 shares in ABC on 1 Jul 09 @ USD 2.50 (exchange rate = 1.6479)
Sell 2000 shares in ABC on 1 Oct 09 @ USD 4.50 (exchange rate = 1.5986)
with commission of £12 on each transaction.

Disposal proceeds (2000 x 4.50 / 1.5986) = £5,630
Less:
Costs of disposal (commission) = £12
Acquisition costs = (2000 x 2.5 / 1.6479) + £12= £3,034 + £12 = £3,046
Capital Gain = £2,572

If you settle in USD there will also be currency gains/losses to consider when you transfer funds back to GBP.

Another consideration is that overseas share purchases/sales are subject to the same share identification rules as UK shares.

Hope that helps.

Thanks for your answer.
Just thinking ahead....how tax is deducted from earnings above 10K? Is it any profit simply added to your main job earnings and taxed by normal brackets 20%, 40%, 50%?

Obviously I would love to be on the stage where my profit will be above 10K or 21K for couple. Hopefully one day. I guess its nothing new for you guys.

 

[timetotrade]

Dividend income is subject to income tax and the income is added to your other earnings to work out how much tax is due.

Tax on dividends is charged at 10% for nil and basic rate taxpayers and at 32.5% for higher rate tax payers (and 42.5% for 50% tax payers from 2010-2011).

When a company pays a dividend the shareholder receives a tax credit @ 10%, which recognises that the company has paid corporation tax on its profits. So, if your income is below the 40% bracket then there is no further tax to pay on the dividends - this is covered by the tax credit.

If you're a 40% tax payer then there is a further tax liability, which is charged at 32.5% of the gross dividend less the tax credit; ie you'll be charged tax on 22.5% of the gross dividend.

Eg let us say you receive a £90 dividend from ABC plc. You are deemed to have already paid £10 in tax on the dividend via the tax credit; so the gross dividend is calculated as £100.
Nil and Basic rate tax payers will have no further liability to tax.
A higher rate tax payer is charged @ 32.5% of the £100 gross dividend = £32.50. Of which, you are deemed to have already paid £10 in tax via the tax credit, so income tax due on the dividend will be (£32.50 - £10) = £22.50.

Capital Gains on the other hand are currently charged at a flat 18% - irrespective of your income tax bracket. If your overall capital gains for the year fall below the £10,100 (2009/2010) exempt amount then there is no capital gains tax to pay. Gains above the £10,100 exempt amount are charged at a 18%.
Eg, let us say in year ended April 2010, you make £20,000 in gains and £5,000 in losses. To calculate your gain:
Total gain = £20,000
Less losses = £5,000
Net Gain = £15,000
Less Exempt amount = £10,100
Taxable Gain = £4,900
Tax payable @ 18% = £882

NB There is a general consensus that this flat 18% rate is likely to be changed in the next or future budgets.

You declare the income and gains on your tax return and settle payment with HMRC directly. If your dividend income and gains are consistent each year then HMRC could collect tax via your PAYE.


NB If you set up an ISA account with your broker and buy/sell shares via the ISA then there will be no income or capital gains tax to pay.

 

[ogbboy]

Hi,

Regarding GCT, if you are trading US cash equities through a leveraged trading account does the same apply? I'd think you would have to declare it as income as otherwise you'd be able to trade paying 18% as supposed to the higher income tax...