US stocks present a huge opportunity for UK investors to diversify their portfolios with some of the biggest names in the world.
Many huge US tech stocks such as Tesla, Apple, and Amazon have quickly become some of the largest global companies, making them highly attractive propositions for investors.
However, there are a few extra things for UK retail investors to be aware of when buying US stocks, from exchange rates to tax rules.
Here’s how to invest in US shares from the UK, and what you need to know so you can get a piece of the action in the US market.
Also consider: How to Buy Shares UK
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5 steps to investing in the US stock market
1. Open a share dealing account with a UK stockbroker or investment platform
The good news for you as a UK investor is that you won’t need to open a US brokerage account to invest in US stocks from the UK.
Instead, you can open an account with one of the many UK stockbrokers or trading platforms. Most of these will give you access to US investments.
2. Deposit funds to your chosen platform
Next, deposit funds to your share dealing account. Typically, this will be done online by credit or debit card.
3. Fill out a W8-BEN form
One key thing you’ll likely need to do is to fill out a W8-BEN form and return it to the platform you’re trading with. Many platforms now allow you to do this electronically.
This is a key form that you need to complete before you’re able to trade US investments from the UK.
You can find out more about the W8-BEN form later on in this article.
4. Research US investments you want to buy
Once you’re set up and you have money on a platform, you’ll need to research the different US stocks and shares you want to buy.
This could be everything from the big names, such as Amazon and Tesla, to smaller, lesser-known companies with great growth potential.
Of course, UK-based retail investor accounts will allow you to trade UK stocks as well as investments in other countries, too. This means you can create a diversified portfolio made up of global stocks.
Check out our list of the 10 best stocks in the UK to buy right now. We update this page every month with 10 new investments to consider.
5. Start trading
You’re now ready to start trading US investments! You can buy and sell US stocks, shares, funds, bonds, and more in your share dealing account.
One thing to bear in mind is that many UK platforms may charge a foreign exchange fee to trade US stocks through their trading account.
This is because most US investments will trade for the US dollar (USD), even though you’ll likely have deposited money as British pounds (GBP).
You can find out even more about exchange rates and fees below.
What is a W8-BEN form?
A W8-BEN is a tax form to be filled out by non-US citizens who want to invest in the US stock market.
This form gives you the right to trade US investments, while also confirming that you’re not a US tax resident.
UK tax rules and US investments
The W8-BEN shows that there are tax implications to consider when trading US investments. Below are some of the taxes you may want to bear in mind, as they could have a serious effect on your trading profits.
Dividend Tax
Firstly, you’ll need to be aware of US Dividend Tax. While your W8-BEN form will confirm that you aren’t a US tax resident, you’ll still be liable for US Dividend Tax.
US Dividend Tax is charged at 30% as standard. But, as you’re not a US tax resident, you’ll benefit from a reduced rate of 15% on most shares.
And, if you hold your investments in a self-invested personal pension (SIPP), this rate may even be reduced to 0%.
Many platforms will calculate this tax for you and remove it from your trading profits automatically.
Capital Gains Tax
As you’re not a US tax resident, you won’t be liable for US Capital Gains Tax (CGT) on any profits you make on your investments.
However, even though the W8-BEN form will mean you don’t need to pay this in the US, you may still be liable for UK CGT.
Each tax year, you do have a CGT exempt amount, allowing you to make some gains on investments without paying tax. In the 2021/22 and 2022/23 tax years, this amount is £12,300.
But, any profits you produce over this amount may be subject to CGT. Your platform or stockbroker will likely not calculate this for you, so you’ll need to keep an eye on your profits and pay any tax due.
You can entirely avoid CGT in the UK by investing through a Stocks and Shares ISA. ISAs are tax-efficient saving and investment accounts that protect your money from both CGT and Income Tax.
Income Tax
Similarly to CGT, you won’t owe US Income Tax on your investments, but you may owe it in the UK if your profits are considered to be part of your regular income.
This will be charged at 20%, 40%, or 45%, depending on your earnings.
Again, there’ll be no Income Tax to pay if you invest through an ISA.
Prices of individual shares in the US will vary based on company size, performance, and the number of public shares available.
In general, alongside the cost of the actual investment, there are three main costs that you’ll need to bear in mind when trading US shares: account fees, commission fees, and the exchange rate or fee.
Account fees
Account fees are what you pay to hold your account with the platform or stockbroker you have chosen.
Some platforms, such as interactive investor, charge a flat platform fee regardless of how big your trades are. Meanwhile, others may charge a percentage, based on how much you hold with them.
Make sure you search across the market to find the account with fees that most suit your portfolio and trading preferences.
Trading commissions
Many trading platforms charge a commission on each trade you make.
Commissions can quickly add up to reduce the value of your profits. For example, while interactive investor charges a flat fee for their account, they also charge a flat fee for commission on every trade – currently £7.99 as standard.
So, buying small amounts of US shares could quickly see part of your deposited funds eaten up by commissions.
Alternatively, you could avoid commission fees entirely by investing through a commission-free platform instead.
Popular commission-free platforms in the UK include eToro and Freetrade.
Trading with a commission-free platform may help to reduce your trading costs, allowing you to take any returns your investments generate entirely as profit.
Exchange rates or fees
One additional consideration when buying US stocks, or any overseas investment for that matter, is the exchange rate or fee.
As the majority of US investments will be traded in USD, your platform will need to exchange your GBP for dollars.
Some platforms will offer you an exchange rate to do this, or they’ll charge separate fees on top of account fees and commission.
It’s important to note that, even if your platform claims to be free from exchange fees, they may make up the difference by offering you a less-favourable exchange rate.
That’s why exchange rates are sometimes referred to as the “hidden fees” of buying foreign investments.
Foreign exchange risk
One thing to bear in mind with exchange rates and overseas trading is foreign exchange risk. Essentially, as foreign currencies often fluctuate in value in relation to one another, there is a danger that the amount you buy your stocks for won’t have the same value the next day.
Bear this in mind when trading foreign stocks, as it may mean you make less money than you were expecting.
Trading across time zones
Stock markets in different times zones around the world inevitably open and close at different times. That means, when buying US stocks, you need to be aware that it may require you to deal with varying trading hours.
For example, the New York Stock Exchange operates on Eastern Standard Time (EST) in the US, with times as follows:
- Standard trading from 9:30 to 16:00 – equivalent to 14:30 to 21:00 GMT.
- Opening session from 4:00 to 9:30 – equivalent to 9:00 to 14:30 GMT.
- Extended trading hours from 16:00 to 20:00 – equivalent to 21:00 to 1:00 GMT.
Bear in mind that opening sessions and extended trading hours can present a greater risk to traders, as volatile prices can see you lose money on investments quickly.
Of course, trading despite the inconvenience of having to manage investments at different hours could well be worth it for you; the New York Stock Exchange is the world’s largest stock market, with a market capitalisation of nearly $28 trillion, as of March 2022.
What kind of assets can you buy?
You can buy a range of different assets on the US stock market. Common kinds you might look at include, stocks, bonds, funds, ETFs, and even CFDs.
US stocks
Buying US stocks involves picking individual companies and purchasing stocks in them. You can collect payouts from stocks paying dividends or you can wait for the value to rise and then sell them for a profit.
This is a popular way to invest, and it can be an effective strategy over the long term.
For example, a $1,000 investment in Apple at its initial public offering (IPO) in 1980 would have been worth around $430,000 in 2018.
Find out more about buying shares in our guide.
Bonds
Bonds are loans you can make to companies or even to the government in return for interest payments.
Many US companies will raise funds through bonds, or you can buy bonds backed by the US government.
You can then wait and receive your interest payments over time. Alternatively, you can sell your bonds on a secondary market, forgoing the regular interest payments in return for an instant profit.
Funds
Funds are baskets of different investments selected by a fund manager or linked to an index. You can then buy “units” of each fund, receiving returns based on how the underlying assets perform.
This can give you greater exposure to even more investments, further diversifying your portfolio.
Paying a fund manager to assess the investments can be expensive, but can give you the confidence that a professional has an eye on your money.
Alternatively, index funds that track a specific market index can be cheaper as they’re automated. This gives you access to a range of investments without the costs of a manager.
The NASDAQ is an example of an index in the US, as is the S&P 500.
Exchange-traded funds (ETFs)
ETFs are similar to other funds, except that they can be traded like a stock throughout the day.
One big difference is that ETFs containing US companies are typically listed on a UK stock exchange, such as the London Stock Exchange (LSE).
That means the trading is done in GBP rather than USD. This could put you at greater risk of currency fluctuations, meaning you may receive less than you invested if currencies move in an unexpected direction.
Contracts for difference (CFDs)
CFD trading is a type of leveraged trading, in which you essentially bet on price movements rather than buying and owning the underlying asset.
In the US, CFD trading is actually illegal. But, if you’re not a US resident, you can make these trades through UK trading platforms.
Find out more about this strategy in our guide to CFD trading for beginners.
It’s important to bear in mind that CFDs are highly complex instruments and trading them is a risky investment strategy – so much so that UK platforms and stockbrokers are required to advertise how often retail investor accounts lose money while trading CFDs on their platform. This figure is usually above 50% and can be upwards of 70%.
Make sure you fully understand the risks of CFD trading before you begin. Otherwise, you may put yourself at risk of losing money rapidly.
Should I invest in US stocks?
All in all, US stocks could present a big opportunity to you as an investor.
The US is home to some of the largest companies in the world, and so carefully researched investments could help you to produce a return.
Provided that you make your investments as part of a wider, diversified portfolio, US stocks could be a good option for you.
Of course, it’s important to remember that past performance is not an indicator of future performance. You may lose money on your investments, no matter what they are.
Consider investment advice
If you’re unsure whether you should invest in US stocks, make sure you take personal advice from an investment professional.
For example, a financial advisor will be able to tell you whether certain investments are suitable in your personal circumstances.
Do you buy US stocks in pounds or dollars?
Do I have to pay Capital Gains Tax when investing in US stocks?
Please note
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
CFD trading is a high-risk investment strategy and is not suitable for all investors.
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