Tax withholding on US share dividends via a UK based platform

I am a US/UK dual citizen living in the UK.

I'm in the process of opening a brokerage account with Hargreaves Lansdown to trade stocks and shares, including US shares.  HL have advised that 30% withholding tax will be taken on all dividends from US shares. No real explanation apart from those are the 'rules' and they don't give tax advice. Because I am a US person, the W8-BEN cannot be used to reduce tax to 15% via treaty agreement. I've looked into this and it doesn't make sense to me because:

a) The 30% withholding is for non-resident aliens which I am not.
b) I would think that as a US citizen, dividends should be paid to me with no tax  withheld and I report on my tax return as usual...then pay tax owed.
c) I fill in a W-9 to inform them I am a US citizen and what my SSN is. Is there any purpose to this other than FATCA? Does it not let the US company/IRS paying the dividend know I am a US taxpayer thus no withholding tax needed?

I've searched the internet/IRS but haven't come up with anything to explain HL position and I don't think they understand it either.

I'm asking if anyone who is a US citizen invests in US shares through a UK platform and what happens in terms of taxing your dividends.

Many thanks!

I am a USC living in the UK and I do invest in US shares but not through a UK platform.  I pay UK taxes on the dividends and cap gains on sold shares when I do my self assessment.  I would do as you suggest and file a W-9 with them so they can confirm that you are indeed a USC and not subject to the HMRC withholding.  I have 2 UK private pensions and no withholding is done on those monthly payments either. Maybe that is because I pay the HMRC estimated payments in January and July, and pay any balance due on the previous year in January. Been doing that for 3 years now.  I can't remember if I filed W-9 forms with the pension providers or not.

Thank you. The withholding is via the IRS, not HMRC, and HL say they have no control over this?

Thank you. The withholding is via the IRS, not HMRC, and HL say they have no control over this?

Gotcha, I misunderstood. Same deal though I have no mandatory withdrawals on the US side either, including converting sums of my IRA money to my Roth. I pay IRS estimated payments quarterly through the IRS EFTPS, money going from my US bank to the IRS. Being a USC I have never had to do anything to ensure no withholding.

I thought I'd post an update just in case someone else discovers this thread in future with a similar issue!

I've just had a long conversation with someone from HL who maintains that filling in the W9 form means that US citizens must pay the 30% withholding tax for dividends on US shares. This does not align with any of my research including reading Pub 515 and various other tax resources. They seem well meaning but out of touch with the realities of filing a US tax return. He kept suggesting the withholding tax was different than the 'income' I report to the IRS and suggested I phone the IRS for advice(!!!!!!!). Interactive Investor tell me that dividend income will be paid as gross....so who is right!? Unfortunately ii are too expensive for my small portfolio as it stands.

Feeling quite frustrated by the whole process of trying to find a company that will allow me to open an account as a USC and to only be able to invest in shares/bonds!

I thought I'd post an update just in case someone else discovers this thread in future with a similar issue!

I've just had a long conversation with someone from HL who maintains that filling in the W9 form means that US citizens must pay the 30% withholding tax for dividends on US shares. This does not align with any of my research including reading Pub 515 and various other tax resources. They seem well meaning but out of touch with the realities of filing a US tax return. He kept suggesting the withholding tax was different than the 'income' I report to the IRS and suggested I phone the IRS for advice(!!!!!!!). Interactive Investor tell me that dividend income will be paid as gross....so who is right!? Unfortunately ii are too expensive for my small portfolio as it stands.

Feeling quite frustrated by the whole process of trying to find a company that will allow me to open an account as a USC and to only be able to invest in shares/bonds!

When you file your US taxes each year you will declare those withholdings as taxes paid so will get it back. Losing a tiny bit of interest on the withholdings of money you withdraw is probably a price worth paying to do what you want to do.  I wouldn't worry about it.

Yes, I guess I could do that. I suppose I'd want to reinvest dividends anyway? I normally have no US tax liability so I would end up with small amounts of refund, wouldn't I? Just seems like a hassle - I've lived in the UK for 20+ years and have no US banking etc.

Lemonjaffa cake is a long-term resident and so cannot take advantage of the generous rules open to non-domiciled individuals and the remittance basis. For such an individual a UK platform would not be suitable.

The tax position is straightforward-
•   The US does not apply any withholding on its citizens, even those who are non-resident.
•   The dividends are taxed in the UK with the benefit of a notional 15% withholding tax, as set out in the tax treaty.
•   The US then taxes the dividends but gives credit for the above UK tax.
•   The UK then gives relief for the above US tax.

Yes, I guess I could do that. I suppose I'd want to reinvest dividends anyway? I normally have no US tax liability so I would end up with small amounts of refund, wouldn't I? Just seems like a hassle - I've lived in the UK for 20+ years and have no US banking etc.

Reinvesting or not is a personal choice, the tax is the same either way. Not having a US bank is real bummer when it comes to getting a refund, I hadn’t realized you were in that situation.

The tax position is straightforward-
•   The US does not apply any withholding on its citizens, even those who are non-resident.
•   The dividends are taxed in the UK with the benefit of a notional 15% withholding tax, as set out in the tax treaty.
•   The US then taxes the dividends but gives credit for the above UK tax.
•   The UK then gives relief for the above US tax.

I agree with your first point regarding US citizens not subject to withholding...but HL does not! They say they cannot remove the withholding tax and it must be applied at 30%. I'm not sure if this is because the actually can't or they don't want to deal with the administration of it.

Also do you mean UK platform is not suitable for me? I haven't got much choice here, being a UK resident with no US address or anything else. I was planning to put the shares in an ISA to avoid UK tax issues at least.

HL's systems may not be able  to deal with the proper application of the tax rules. Shame on them if this is the case.

HL's systems may not be able  to deal with the proper application of the tax rules. Shame on them if this is the case.

Yes indeed.

Updating in case anyone else comes upon this post. I eventually got someone from HL to admit that it was indeed their own systems which could not sort the withholding tax properly and they just applied 30% tax to USC regardless. I believe Interactive Investor are able to pay dividends gross to USC,  so if anyone else is in this position they may be worth checking out. Most of my holdings are UK based, so I've stuck with HL for now. There's very little choice as a USC anyhow!

Being a USC in the UK is not always easy, especially when it comes to money & investing.

I found it especially difficult in terms of a pension and opening a SIPP where I could control my investments. I had a SIPP with HL but chose to transfer it when I became more fully aware of all the charges that I was incurring (what a ripoff!)- this became more & more critical as the size of the pot began to grow. I initially moved it to Fidelity (figuring they're a US company) but they unexpectedly froze my account when I was working on a project in the US and tried to execute a trade from overseas!

After a lot of research (you may see an earlier post under SIPP providers) I settled on IWeb which is a Halifax PLC product administered by AJ Bell and touch wood, all is going well and their admin charges are flat quarterly fees rather then %age based on the value of your portfolio.

In terms of a dealing account, I know Schwab https://www.schwab.co.uk/brokerage-account have a UK account - you'd like to think that they know what they're doing when it comes to US withholding taxes  - I have no knowledge of Schwab in the UK - only in the US back in the 90's (showing my age  !) but would be interetsed to know if others have any experience with them.

Definitely a struggle trying to find someone to give me an account! I’ve got only shares in an ISA, and it is small so HL fees aren’t too much of issue for now. Interactive Investor would have taken me and seemed to be able to cope with the tax but the monthly fee was expensive for my portfolio being small. I don’t have the requisite funds for Schwab but they seemed good if you are looking to invest in US shares in dollars. No access to US based ETFs, sadly.