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.

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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?

6

Now, with Trump’s section 899 “revenge tax”, the situation around WHT is going to change a bit. Applying the planned 50% tax on US dividends would translate to a 0.7% hidden “platform fee” for pension providers that don’t reclaim the tax. I’m also not sure whether this additional tax can be reclaimed at all, as it is most likely undefined in the DTA as of right now, so that might be interesting to clarify as well.

To correct the point above, that’s not how WHT works. WHT is paid “at source”, so the company that plans to pay out a dividend will pay the full 30% tax. If the fund is located in Ireland for example, they can reclaim half of the tax for you, they don’t pay on your behalf. Similarly, pension providers can further reclaim the full remainder for you, but not all pension providers do, which is why I raised this question to InvestEngine initially.

For now I think sticking to swappers is the best strategy going forward as they’re completely outside of US jurisdiction.

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7

Glad you picked up on this point. I also think that Synthetic ETFs are the way forward of US applies sec 899. I have already put my IE funds into I500. Unfortunately I have a SIPP in Fidelity that I am waiting to eventually transfer to IE. Fidelity only have one Synthetic ETF available which is an Invesco MSCI World fund. I have done a ton of back ground research into Sec 891 and sec 899. Hopefully the latter will be watered down but if not then it looks to be enacted by Jan 2026. If Synthetics do fall under section 899 then I will have to decide whether or not to stick it out or reallocate away from US. Either way it’s just another in the backside for investors!

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Morning :wave: :grinning:

This is a good write-up on the current situation about US withholding tax and section 899.

9

The section has been scrapped now. Good news.

10

This seems to be a good write-up about it as far as I can find. I would expect Monevator and other UK based blogs to pick up on the removal of section 899 in due time.

There’s also this press release from the government - G7 reach agreement on global minimum tax - GOV.UK