SIPP withholding tax questions

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1

The SIPP help page says:

For eligible US dividends held within a SIPP, Trading 212 applies a 0% withholding tax rate, meaning you receive those dividends in full. Please note, some US securities fall outside this treatment and will be subject to withholding tax.

Which US securities do fall outside of this treatment?

Would the 0% withholding tax apply, for example, to LSE:DEC?

Are there other countries where Trading 212 intends to leverage tax treaties for the benefit of their SIPP customers?

2

Here is my understanding:

The preferential tax agreement (ie 0% tax) is with the USA and Canada only.

If you hold US or Canadian shares in an ETF, and that ETF is not based in the US or Canada (highly likely) then you will be paying tax at the rate of the country in which the ETF is based.

3

I thought the pension provider would have to be the owner of the shares to get the benefit of 0% withholding. An ETF therefore shouldn’t work.

I also don’t believe you’ll find any ETF’s based in North America on T212, as they’re generally not UCITS compliant.

What is relevant is where the company is based, rather than where it is listed. Hence the example of DEC, which is a US company with dual listings, NYSE and LSE.

Maybe somebody from T212 could shed some light? @Bogi.H or @Veselin.V ?

4

I put your question into Googles Gemini, and for the purposes of what is available on T212 it is REITs.

I have some shares in Welltower in my SIPP and they are due to pay a dividend on 20 August so I’ll be able to verify this aspect of your question then.

5

Thanks Runen, looking forward to hear about Welltower.

Disappointing that nobody from @Trading212 can be bothered though.

6

Well, my dividend from Welltower came in and it wasn’t taxed. Since I believe that it is a REIT, this is both welcome and unexpected.

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According to what I read, this should have been taxed. But it at least proves that there is no tax on USA dividends when held in a SIPP. Incidentally, As a sidenote, I can confirm that French shares do have withholding tax applied at 25% as expected.
I’m still playing with my SIPP, but some of my investments are now starting to pay me dividends so I expect to learn more about the tax situation as the months pass by. I have shares in WPM which are due to pay a dividend in 2 weeks, so I’ll try and remember to report back about those as well to confirm the expected 0% tax rate.
It doesn’t appear that T212 have any Canadian REITs available on TSX otherwise I’d have made a test purchase to see what will happen. The best alternative that I could find is RIOCF which is available on the OTC market so I’ve dropped £10 on those to see what happens in the future.

7

It’s just my 2p but the most common ones would probably be ADRs for non-US companies, eg if you own the US OTC listing of L’OrĂ©al, you likely have to pay French withholding tax.

MLPs and PTPs might be another example though many UK brokers withdrew access to US partnerships entirely due to tax changes a few years back.

I think you can still end up paying withholding tax on some US Reits depending on the distribution method but you’ll pay zero on ordinary dividends which make up the bulk.

I would imagine the answer is ‘no’ in terms of other tax treaties. As I understand it, the administrative burden outweighs the benefit from a broker’s point of view.

8

Since the Forum support guys kept stumm, I’ve been pestering the in-app support team for a bit. Here’s what I’ve been able to get confirmed:

  • US ordinary shares: Trading 212 applies the special pension treatment, so standard US corporate dividends can qualify for 0% withholding tax in the SIPP.
  • Non-US markets: Trading 212 does not currently apply pension-specific treaty rates or submit foreign tax reclaims for the SIPP.
  • Future support: Trading 212 says it is continually looking to improve international tax efficiency, but there is no current roadmap or timeline for adding pension-specific relief for Canada or other non-US markets.
  • What rate applies outside the US: Their upstream/intermediary custodians apply the standard DTT rate for UK residents where available, otherwise the relevant local statutory rate. Trading 212 does not then reclaim any excess.
  • Canada: This means Canadian dividends in the SIPP use the ordinary UK-resident treaty treatment rather than the special pension exemption. Practically, that points to 15% withholding, not the 0% rate potentially available to a qualifying UK pension.
  • US REITs: These are an exception to the 0% rule. Trading 212 says US REIT distributions are generally subject to 15%–30% withholding, depending on the circumstances.
  • ADRs: ADRs do not automatically get US 0% treatment. Their dividend withholding follows the underlying company’s home-country tax treatment.
  • UCITS ETFs: Withholding generally occurs inside the fund on dividends received from underlying holdings, rather than being eliminated by the SIPP wrapper.
  • MLPs/PTPs: Trading 212 says these are not supported on the platform.
  • Eligibility list: Trading 212 does not maintain a static list of securities eligible for 0% US withholding. Treatment is determined dynamically from the security classification and upstream-custodian processing.
9

Thank you for presenting your findings @fossil_expo.0e, you have provided a well written summary. I agree with everying that you say, including the tax on US REITs, even though my dividend from Welltower was not subject to withholding tax, for which I can provide no reasonable explanation.

Where shares are available on multiple exchanges, I have been experimenting to work out where it is most advantageous to purchase stocks. My results for Wheaton Precious Metals (a Canadian company) are in. I purchased on NYSE, LSE and TSX exchanges. As I would expect since WPM are not based in the UK, there was no LSE stamp duty to pay. Dividends were not as I expected however. For the LSE shares I paid 20% withholding tax but for the NYSE and TSX shares I paid only 15%. So I see no reason why anyone would want to purchase the LSE version knowing that.

For Riocan, a Canadian REIT that I purchased on the OTC market (T212 don’t support on TSX for some reason), I had a withholding tax of 15% applied to my dividend.

I’ll be able to report back on some other test purchases in a few weeks - Diversified Energy, BHP Group and RHI Magnesita.