Hey i was just wondering if you can provide a bit more detail on this. If i am a UK tax payer and i hold a ETF such as S&P500 from Vanguard then vanguard withhold 15% and then i get subjected to 7.5% dividend tax and 32.5% if i am higher rate. I thought in the UK after you have used your free £2000 dividend allowance the US stocks taxation is taken into account and you pay the balance. So if you are basic rate tax payer you pay nothing more than the 15% that has already been withheld and if you are higher rate taxpayer you pay 32.5 - the 15% you already paid? Am i missing something?
The calculations in your penultimate sentence are correct for dividends that are paid directly to you by US companies. However, for ETFs that hold US companies, like VUSA, there is no 15% that can be deducted from your UK tax liability. That is because the 15% US withholding tax was paid by Vanguard before they distributed income to you. At that point it was Vanguard, not you, who was the taxpayer - so you cannot take a foreign tax credit for that US tax.
This is why with an ETF like VUSA there is an element of unavoidable double taxation. A basic rate taxpayer owes 0 on dividends from Apple, but 7.5% on dividends from VUSA, IITU, USDV, etc. Does that make sense?
Ah i see, so would that also apply to other international ETF’s like VFEM and VAPX. I guess it depends if the portfolio countries within those ETF have witholding tax aswell?
That’s right. You always pay UK tax on the full ETF dividend, with no possibility to take a foreign tax credit for dividends that Vanguard has paid. For example, Vanguard will also be paying German withholding tax on German company dividends accruing in VERX. But I think the US situation is the one most egregious and which affects many investors (most of whom do realise this).
This is one reason that it can be preferable to own companies directly. My US portfolio of companies has a yield of 2.79%. By comparison, VUSA pays 1.51%.
So if we are talking about an Invest account it may be better to hold accumulation units of the Vanguard ETF and then the only taxation that would apply is the witholding tax that Vanguard pays where applicable and then CGT on disposal? Or if you want to buy distributing ETF’s to keep them within an ISA?
Unfortunately no. In a taxable account, accumulating ETFs are also taxable each year on the dividends that are retained and rolled up in the fund. You are expected to refer to Vanguard’s web page and find the “excess reportable income” that has been so rolled-up and report it for dividend tax. Expand the tab called “Report to Participants (current and previous years)” at this page
To give an example in the first line we read that Vanguard S&P 500 UCITS ETF USD Accumulating Share (VUAA) had $0.1126 per share of reportable income.
Having paid the dividend tax on $0.1126 per share, via your self assessment tax return, you can increase the basis cost of your units by this amount, as if you had reinvested it, and then there will be less capital gains tax to pay when you come to sell.
This has been discussed in some other posts in this community. Search for “excess reportable income”. There is also information about this on the HMRC website. See also here for a discussion of distributing vs accumulating funds. The key point is that the taxes owed are very much the same.
To make things even harder, you might think that distributing ETFs are easier because then you only pay tax on the dividends you receive. However, these can also have “excess reportable income”, albeit smaller amounts than their accumulating siblings. Vanguard does not actually distribute 100% of the income. So with either type of ETF you will need to look up the income on the Vanguard (or other provider’s) website, if you are in a taxable account are have dividend income exceeding the annual tax free allowance.
A lot more complicated than I first thought. My invest account has some individual US Stocks and three international ETF’s. I’ll have to just think about this some more.
Thankyou for the links to the other threads., i appreciate it!
This is my first pie, only stocks.
This one is made by ETFs, just two to take it simple.
What do you think about it?
Also, I’m studying if it’s better to buy only on Mondays, or the same amount, every day, but obviously divided by 5.
I prefer to buy only on Wednesday.
Here is my trash pie:
It performs as its name suggests.
Some actual pies that I use are:
Why on Wednesday? I like them, the only think I don’t like too much is the fact that the calculator makes me think that I will do some fantastic performances, but it seems so improbable to me…
There isn’t a huge difference on the day but I find that Monday and Friday can be quite volatile, so I like Wednesday.
I think the first is a little too much heavy on US… I mean, every ETF has a lot of US stocks in it… It’s redundant! Don’t you think?
The second pie is a classic tech, but…I would not use it alone, replacing the first, maybe it would be beside it…
@Matt_C I’d prefer to buy on Fridays when the market is closing… It would be a good feature to select the time of the but, don’t you think?
You can select the day, I’m not too worried about time as you’ll average in anyway. For the people who want to select the time it would be nice to have but it isn’t the end of the world
Here’s an easy Steak Pie recipe:
- 3 tbsp sunflower oil
- 1kg braising steak, diced
- 2 onions, roughly chopped
- 3 tbsp plain flour
- 1 tbsp tomato ketchup
- 2 beef stock cubes mixed with 600ml boiling water
- 375g sheet of ready-rolled puff pastry
- 1 egg yolk, beaten
Further instructions can be found here: https://www.bbcgoodfood.com/recipes/easy-steak-pie
While we’re sharing dividend pies, here is mine. I’ve tried to find a balance between companies which still exhibit growth while simultaneously paying decent dividends.
Visa and Heineken are a little strange Ill admit. Visa doesn’t have the best dividend but do show great growth. Heineken is just a tasty beer so why not.
Joe’s Chicken Pie is always a winner round ours.
This is my mine: http://www.trading212.com/pies/l71F8H0idpFi90bQl5wwzQcTBhFm
DAL Is a bit of an odd one out but it’s pretty strong. Maybe too overweight on Tesla?
I agree for Tesla, but it is mainly because the position almost tripled since I bought them. As I also believe in the company for the long run, I am not thinking to trim the position.