Buying US shares is an exciting prospect, home to shares in the likes of Amazon and Google, the US markets are often home to technology giants. Something London just can’t offer.
Global Equity Funds will give you access to US shares and technology companies at a low-cost, but if your heart is set on a particular share, then there’s arguably no substitute for buying straight into it yourself.
The good news is the process to buy US shares is easy just like investing in a UK-listed share or any number of funds available in the marketplace.
However, the area that needs consideration is around the cost and expenses of buying and selling the US shares.
Whilst many online platforms offer the option to hold US shares in a regular dealing account or tax-efficient wrapper such as a Stocks & Shares ISA, you will see additional costs compared to buying shares listed on the FTSE and AIM.
With your dealing account or ISA most-likely denominated in British Pounds, you will experience currency conversion costs in addition to the standard dealing charges. The currency conversion charge tends to be around 1 percent of your purchase or sale.
This would mean that on a purchase of £10,000 worth of American-listed shares such as Alphabet Inc (Google owners), you would experience a currency charge of £100.
With that said, some online brokers will all you to have a share dealing account primarily in a foreign currency – meaning you can convert the currency yourself often at a cheaper rate through another provider. However, the downside is that you cannot hold foreign currency inside tax-efficient wrappers such as an ISA, so you will have to opt for a regular share dealing account.
Needless to say, when converting currency – you are subject to currency fluctuations which could either give you more or less for your money at any point in time. Therefore, it’s best to check before you deal on the strength of the GBP.
Tax Considerations – Dividends…the W-8BEN US Tax Form
Alongside the currency considerations, you must consider the tax levied on dividends received from shares listed in the US. The best way to deal with this is to complete and submit a W8-BEN tax form to your online broker prior to buying US shares.
Completion of this relatively simple form will enable you to pay a reduced rate of income tax from the US shares purchased.
Is Buying US Shares a Good Idea?
If you have confidence in a particular US share and it’s prospects – then yes there is a very strong case that even with the additional currency costs and tax implications, then it can make sense.
However, in reality, buying US shares from the UK should only be reserved to those where you forsee exceptional opportunity and appreciation – something you can’t find from UK-listed shares or Global Equity Funds.