UK residents receiving dividends from US shares face two layers of tax:
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US withholding tax deducted at source (normally 15%).
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UK Income Tax on the gross dividend, reported via Self Assessment.
To avoid double taxation, you can usually offset the US withholding tax against your UK dividend tax bill through the Foreign Tax Credit system.
1. US Withholding Tax (At Source)
Default Position
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The US normally charges 30% withholding tax on dividends paid to non‑residents.
Treaty Reduction to 15%
Under the US‑UK Double Taxation Treaty, UK residents can reduce this to 15%.
How to Apply the Treaty Rate
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Form Required: W‑8BEN (Certificate of Foreign Status).
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Where to Submit: Your UK broker or platform.
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Outcome: The reduced 15% withholding tax is automatically deducted before the dividend is paid to you.
2. UK Income Tax on US Dividends
UK residents are taxed on worldwide income, so US dividends must be declared on a Self Assessment tax return.
Taxed on the Gross Amount
You are taxed on the gross dividend — the amount before US withholding tax was taken.
Current UK Dividend Tax Rates
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Basic Rate: 10.75%
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Higher Rate: 35.75%
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Additional Rate: 39.35%
Dividends must be converted into GBP using the appropriate exchange rate for reporting.
3. Foreign Tax Credit Relief (FTCR)
To prevent double taxation, HMRC allows you to claim a Foreign Tax Credit for the 15% US tax already paid.
How the Credit Works
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If your UK dividend tax rate is higher than 15%, you pay only the difference to HMRC.
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If your UK rate is lower than 15%, HMRC does not refund the excess US tax — the credit is capped at the UK tax due.
Example
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Gross dividend: £1,000
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US withholding (15%): £150
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UK tax (higher‑rate 35.75%): £357.50
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Foreign tax credit: £150
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UK tax payable: £207.50
4. Exceptions and Tax Wrappers
ISAs
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UK tax: No UK dividend tax inside a Stocks & Shares ISA.
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US tax: The 15% US withholding still applies — ISAs are not recognised by the US for treaty exemption.
SIPPs
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UK tax: No UK dividend tax.
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US tax: Many SIPPs qualify for 0% US withholding tax, because the US recognises UK pension schemes under the treaty.
Dividend Allowance
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The UK dividend allowance is £500.
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If your total dividends (UK + overseas) fall below this threshold, they do not need to be reported.
5. Summary
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US dividends face 15% US withholding (with W‑8BEN).
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UK residents must declare gross dividends on Self Assessment.
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You can claim a Foreign Tax Credit to avoid double taxation.
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ISAs don’t remove US withholding; SIPPs often do.
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The £500 dividend allowance may eliminate reporting for small portfolios.
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