UK foreign tax credit for US ETFs L1TW?

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Topic Author
stressed
Posts: 59
Joined: Mon Feb 26, 2018 6:28 am

UK foreign tax credit for US ETFs L1TW?

Post by stressed » Sun Nov 03, 2019 8:22 am

Hello,
I am UK based and invest in various US ETFs (before anyone asks, they all have UK reporting status :D ).
There are two levels of dividend tax withholding on these funds: L1, paid by the fund to the different countries where the underlying stocks are based, and L2, withheld by the broker on behalf of the US government.
I can easily see the exact L2 tax amount as it is included in the broker statement, so I can claim it back in my UK tax return.
Can I do the same for L1 tax withheld and how do I go about it? (these are all Vanguard funds)
Thanks

TedSwippet
Posts: 2499
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: UK foreign tax credit for US ETFs L1TW?

Post by TedSwippet » Sun Nov 03, 2019 9:47 am

stressed wrote:
Sun Nov 03, 2019 8:22 am
Can I do the same for L1 tax withheld and how do I go about it? (these are all Vanguard funds)
I have never found a way to accomplish this for UCITS funds, so it seems unlikely that it would be possible for US domiciled ones. Maybe try asking this on a UK specific forum?

Topic Author
stressed
Posts: 59
Joined: Mon Feb 26, 2018 6:28 am

Re: UK foreign tax credit for US ETFs L1TW?

Post by stressed » Fri Nov 08, 2019 3:46 pm

Thank you, I will try asking in a UK forum.
When you say you couldn't find a way to accomplish it, you mean you couldn't find the relevant info (the amount of L1 tax paid by the fund)? Because for US ETFs this info is available (albeit not aligned with the UK tax year)

TedSwippet
Posts: 2499
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: UK foreign tax credit for US ETFs L1TW?

Post by TedSwippet » Fri Nov 08, 2019 4:48 pm

stressed wrote:
Fri Nov 08, 2019 3:46 pm
When you say you couldn't find a way to accomplish it, you mean you couldn't find the relevant info (the amount of L1 tax paid by the fund)?
I mean that I never found anything in HMRC instructions or other articles that mention it as a possibility. I did however find this in the bowels of HMRC, which I think says that it is not a possibility (unless you are a company):

https://www.gov.uk/hmrc-internal-manual ... intm164010
UK residents with foreign income or gains: dividends: Foreign dividends - glossary
As a general rule the UK will give credit relief for direct tax paid on dividends to all persons resident in the UK. But in addition the UK will give relief for underlying tax (see below) where the recipient is a company which owns more than 10% of the voting power in the company paying the dividend.
...
c) Direct tax means foreign tax charged on a dividend by deduction at source or charged directly on the shareholder. It includes
i) tax which a foreign company or a withholding agent is required to deduct from dividends and pay over to the appropriate tax authority. It may be described as a withholding tax, a non-residents tax, a non-resident shareholders tax etc.,
ii) tax directly assessed on a shareholder on his dividends from a foreign company

d) Underlying tax means foreign tax which is borne by the foreign company on the profits out of which a dividend is deemed to have been paid. ...
...

jw50
Posts: 21
Joined: Thu Jul 27, 2017 2:00 pm

Re: UK foreign tax credit for US ETFs L1TW?

Post by jw50 » Sat Nov 09, 2019 6:10 am

I wonder if you could enlighten me.

What is the advantage of US ETFs and which one do you use?
How do you claim back dividend withheld through your UK tax return?

Thank you for your expertise.

Julian

(PS: I have an Interactive Broker account; therefore should be straight forward buying an US listed ETF with UK reporting status)

Topic Author
stressed
Posts: 59
Joined: Mon Feb 26, 2018 6:28 am

Re: UK foreign tax credit for US ETFs L1TW?

Post by stressed » Sat Nov 16, 2019 10:11 am

jw50 wrote:
Sat Nov 09, 2019 6:10 am
I wonder if you could enlighten me.

What is the advantage of US ETFs and which one do you use?
How do you claim back dividend withheld through your UK tax return?

Thank you for your expertise.

Julian

(PS: I have an Interactive Broker account; therefore should be straight forward buying an US listed ETF with UK reporting status)
Their advantage is that they have lower costs. They have lower TER, and lower commissions and bid-offer spread.
For L2 tax withholding (the 15% withheld by the broker), it's very simple, I just include it in my self assessment. L1 (tax suffered by the fund itself), seems that can't be reclaimed (but that's the case with Irish funds, so it's a draw there).
There's another advantage of US ETFs that include US equities, so any global equities ETFs. The US ETFs don't suffer L1 withholding, unlike the Irish equivalent, that part 15%.

Topic Author
stressed
Posts: 59
Joined: Mon Feb 26, 2018 6:28 am

Re: UK foreign tax credit for US ETFs L1TW?

Post by stressed » Sat Nov 16, 2019 10:11 am

TedSwippet wrote:
Fri Nov 08, 2019 4:48 pm
stressed wrote:
Fri Nov 08, 2019 3:46 pm
When you say you couldn't find a way to accomplish it, you mean you couldn't find the relevant info (the amount of L1 tax paid by the fund)?
I mean that I never found anything in HMRC instructions or other articles that mention it as a possibility. I did however find this in the bowels of HMRC, which I think says that it is not a possibility (unless you are a company):

https://www.gov.uk/hmrc-internal-manual ... intm164010
UK residents with foreign income or gains: dividends: Foreign dividends - glossary
As a general rule the UK will give credit relief for direct tax paid on dividends to all persons resident in the UK. But in addition the UK will give relief for underlying tax (see below) where the recipient is a company which owns more than 10% of the voting power in the company paying the dividend.
...
c) Direct tax means foreign tax charged on a dividend by deduction at source or charged directly on the shareholder. It includes
i) tax which a foreign company or a withholding agent is required to deduct from dividends and pay over to the appropriate tax authority. It may be described as a withholding tax, a non-residents tax, a non-resident shareholders tax etc.,
ii) tax directly assessed on a shareholder on his dividends from a foreign company

d) Underlying tax means foreign tax which is borne by the foreign company on the profits out of which a dividend is deemed to have been paid. ...
...
Hmm, yes, this seems to indicate that L1 can't be claimed back. Thank you

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