How to manage tax on foreign trades

Working out how much UK tax to pay on dividends from foreign stocks can be a real headache. Cris Sholto Heaton explains everything you need to know about managing tax on foreign trades.

It makes sense to look beyond Britain's borders when you invest. The cost of trading foreign stocks is falling all the time. And if you're after high-quality global companies that pay decent dividends the sort of stocks we favour you can spread your currency risk by investing in European, American and even Asian blue-chips too.

But just be aware of the tax implications. Most British residents need to pay UK tax on dividends from foreign shares, whether or not you bring the money back into Britain. The complication is that some countries will already have taken tax from this income. This is known as withholding tax', and means you can end up being taxed twice on the same income. Obviously, this would be unfair even by tax standards. So Britain has double taxation agreements' (DTAs) with most countries to stop this happening. The DTA limits the maximum withholding tax that can be taken from dividends paid to British residents: it's usually 15%. This can then be offset against any UK tax due.

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Australia*30%15%
Canada25%15%
France25%15%
Germany26.375%15%
Hong Kong0%0%
Ireland20%15%
Singapore**0%15%
Spain19%15%
Switzerland35%15%
US30%15%
* Except franked dividends, which have no withholding tax.
** The treaty provides for 15% withholding tax, but Singapore currently imposes none.
Cris Sholto Heaton

Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.