SIPP US withholding tax

Help & FAQs
1

Hey,

I’m looking into opening a SIPP with you, the product looks really exciting, but for a fair comparison I would like to know whether you reclaim US withholding tax on your customers behalf?

To my understanding the US (and other nations for that matter) can’t claim withholding tax on (untaxed) pension assets, down from the 15% you usually pay in either UK/IE according to their respective DTA. But as the pension assets are not held in your own name, you can’t reclaim the WHT yourself, instead the pension managers must do so on your behalf. Some pension providers do, some don’t, I couldn’t find clear guidance on that topic.

Assuming a 70% US allocation and 2% dividend yield, not reclaiming WHT would translate to a 0.21% hidden “platform fee”.

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2

Interesting question. I hope someone from IE answers it.

3

Hi @martizih - welcome to the InvestEngine community! Great question - I passed this on to our pension team to have a look at, here’s their response, which hopefully you’ll find useful:

Where an investment is made directly into a US listed equity you will find that UK platform providers will ask their clients to complete a W8BEN. Where the investment is held within a UK pension the pension trustee will be asked to complete a W8BEN-E.

When these forms are completed the rate of US withholding tax that is applied to dividends paid by US listed equities is reduced from 30% to 15%.

As Investengine offers ETFs, our clients do not directly invest into US listed equities, those investments are made by the ETF itself.

This means that the ETF registers with FATCA and is then recognised by the US tax authorities, which also reduces the rate of US withholding tax that the ETF bears on dividends it receives from US listed equities to 15%.

As such, there is no requirement for us to obtain a W8BEN from our customers.

It should also be noted that some ETFs (known as synthetic ETFs) do not directly own equities and as such do not pay withholding tax. In addition, countries other than the US can apply a withholding tax.

This tax will be applied by the tax authority where the ETF is traded and domiciled.

The large majority of InvestEngine’s ETFs are domiciled in Ireland, and the dividends are paid without any Irish withholding tax being deducted.

InvestEngine provides some ETFs which are domiciled in the Netherlands or Luxembourg. In these cases, some of the ETFs may have a withholding tax applied at source, i.e. it is deducted before it is paid out to the owner of the security.

InvestEngine do not provide an advisory service, so we can not provide any tax advice, and we must ask clients to do their own due diligence.

This includes researching any ETFs you purchase; we provide a Key Investor Information document at the bottom of every ETF page, which you may find useful when doing your own due diligence.

You can view our ETFs here, and view these supporting documents.

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4

Hi Fiona,

Thank you for the detailed response. Unfortunately, it fails to answer the question. This is all clear and applies to any regular investment. As I understand it, for assets held in a pension, pension providers have the opportunity to further reduce withholding tax from 15% to 0%, even for investments held in ETFs. They can do this on their customers behalf, customers themselves can’t. Some pension providers don’t do this as their shares for different account types, ie. SIPP and ISA are held intermixed in a single account with their brokerage. As ISA do not benefit from this tax treaty and their brokers can’t distinguish which asset belongs to which account type, they can’t reclaim WHT.

Anyways, for now I just go with you and invest in I500 + EXUS, a Synthetic Swapper S&P500 + MSCI ex-US as you suggested, the same portfolio strategy I would use outside of a pension. As even with the increased TER of the EXUS (0.15%), it is overall still cheaper than other platform’s platform fee.

I’m excited to finally see a great product in that long-neglected space. Thank you!

5

When investing in ETFs, the withholding tax is paid at the fund level on the individual stock dividends. I don’t see how a platform could reclaim that?