Avoid Witholding Tax on US stock dividends?

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?

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What about movements in the share price? What about capital gains (assuming you’re not in an ISA)? Why would you want to avoid dividends?

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This is above my knowledge level for sure but that’s what I thought.

I’m lost on this. So to avoid paying 15% tax you don’t get any of the dividend at all? Why?

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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.

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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? :thinking:


If you use an ISA then you don’t have to worry about either of those.

It seems like a very unreliable, fiddly and odd tactic. By receiving the dividends you then have cash in your account to then reinvest into more shares or withdraw.

Otherwise you would constantly be selling and rebuying shares, requiring extremely close monitoring of your account with no guarantee the prices will behave in the way you want.


You are right that ISA will avoid CGT and Dividend Tax, but you still pay withholding tax on the US dividends because they are taxed at source.


If you had $50k invested and were getting a 5% dividend, that’s $2.5k, and 15% of that is $375.

People go to crazy lengths and amazing amount of hassle creating and closing and transferring bank accounts to get £50 joining bonuses or get access to £100 of extra savings interest and such.

If this idea actually worked and you could pull it off, we’re only talking about putting a reminder in your calendar and pressing a few buttons in Freetrade.

Why wouldn’t you do this?

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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?

Because of the spot rate + 0.45% :wink:

Taking $50,000 as an example, your loss will be circa 0.9% in total on buying and selling, which translates to ~$450. And all of that assuming this strategy works in the first place.


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.

Ah. All the more reason for Freetrade to negotiate a better exchange rate then :slight_smile:

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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 :slight_smile:

That is interesting, do Freetrade users pay a 0.45% charge when buying & selling stocks in foreign currencies? Do you have a link to any Freetrade info on this?

I don’t know much about FX, maybe that’s a standard rate.

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).

Feel free to ask if there are further questions.


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


It’s the conversion rate, not a fee and they make no money on it at this stage


I was going to ask if there was currency wallets like say Revolut have. So you can exchange at a preferable USD/GBP rate and then buy USD stock at another time with USD.

Probably a reasonable assumption that if Revolut do something then Freetrade won’t be doing it :grin: