Dividends from US stocks for UK residents are subject to a Witholding Tax of 15%.
Assuming that dividend payments are efficiently priced into the share price, could one avoid receiving dividends and hence paying witholding tax by selling shares immediately before dividend payments are declared and re-purchasing the shares immediately after?
I imagine the concept is that when you sell the price is high, because buyers are anticipating the dividend, and when you buy again, the price is low, because the dividend has been paid out (to the person you’re buying from).
So in theory instead of paying tax on dividends you pay capital gains tax, of which you have more allowance.
Wouldn’t you need to have a capital of hundreds of thousands or more to justify the hassle even if that strategy was workable? And if you had that capital, would the 15% of 1% - 4% dividend be even material enough to go through that route to avoid the tax?
This is quite an interesting concept, although I’m sceptical that it would actually work in practice, mainly as i think the one day price fluctuations would wipe out any of the gains. Also this would only be viable for big yielders for the same reason.
Have there been any historical studies into the viability of this?
Also dont forget that US stocks tend to be quarterly dividend payers. That 5% yeild would actually be 1.25% per quarter (every time you’d have to execute the strategy) so you’d have to factor that loss in 4 times across the year.
I am not entirely sure, but I don’t think it is possible, the rate is given to them by the market and the only way I see the charge going away in the long term is if Freetrade makes enough revenue to absorb the costs of users’ FX, which of course would be great
Here is Freetrade’s Head of Finance explaining the rationale. Here is me giving a practical example of what the figures are likely to be when you make USD denominated transactions (bear in mind the 0.5% rate has been lowered to 0.45% since then).
If you can hold foreign currencies in your account, e.g. USD, and use that money to buy and sell US shares then this would get around the exchange fees.
Just did a quick search and I didn’t see anything regarding plans to add other currencies. I̶ ̶h̶a̶v̶e̶ ̶r̶e̶a̶d̶ ̶a̶ ̶f̶e̶w̶ ̶c̶o̶m̶m̶e̶n̶t̶s̶ ̶f̶r̶o̶m̶ ̶F̶r̶e̶e̶t̶r̶a̶d̶e̶ ̶s̶t̶a̶f̶f̶ ̶h̶o̶w̶e̶v̶e̶r̶ ̶s̶a̶y̶i̶n̶g̶ ̶t̶h̶e̶ ̶F̶X̶ ̶f̶e̶e̶ ̶i̶s̶ ̶h̶o̶w̶ ̶t̶h̶e̶y̶ ̶m̶a̶k̶e̶ ̶t̶h̶e̶i̶r̶ ̶m̶o̶n̶e̶y̶,̶ ̶s̶o̶ ̶t̶h̶i̶s̶ ̶m̶a̶y̶ ̶b̶e̶ ̶u̶n̶l̶i̶k̶e̶l̶y̶ ̶t̶o̶ ̶c̶h̶a̶n̶g̶e̶.̶
Edit: I’ve striked through the above text, @Rat_au_van has corrected me below. This article states that Freetrade do not make money on the 0.45% currency exchange fee, this is the rate that they get, which they pass on to users: Freetrade Invest Hub