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CHY

Practical Issues
1nvest
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CHY

#331979

Postby 1nvest » August 9th, 2020, 4:06 pm

I used to hold some Calamos Convertible US stock/fund holdings CHY, that paid around 10%/year dividends, on a regular monthly basis. Yes it is relatively high management costs, and could be more a case of return of capital, but it seems to hold up OK and with some trading can work out well. Used to be a great holding for me some (many) years back, I used Lichello's AIM to add on the dips/reduce on the peaks and it worked out OK. I think now however, since FATCA as its a 'fund' and isn't UK reporting registered my understanding is that any capital gains are also counted as being income rather than capital gains by HMRC?

Is my understanding correct that outside of a ISA, in a standard trading account and for a 20% basic rate taxpayer the dividends would incur just a further 5% tax payable to HMRC in reflection of the 15% US dividend withholding tax already paid?

Fundamentally was thinking about dropping £12K/year of income production amount (so around £120K) into it back in March for one of my young-adult sons who as of yet has no other sources of income, so a nice £1K/month regular income stream, but shied away. I guess in ISA it wouldn't be a issue either way, so could/should have dropped £40K into it across old/new fiscal years ISA allowances. But I'm not even sure whether that's even possible nowadays (to hold non reporting US funds inside a ISA?).

Alaric
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Re: CHY

#331981

Postby Alaric » August 9th, 2020, 4:15 pm

1nvest wrote: But I'm not even sure whether that's even possible nowadays (to hold non reporting US funds inside a ISA?).


As well as complications from a non-reporting status, you may also have the problem that platforms are required to tell you to read the key features in the form of KIDs or KIIDs. Funds not marketed in the UK wouldn't normally bother to prepare these. So you might not be able to buy even outside an ISA.

It's a distorted world of investor protection where individual investors can buy individual shares on US markets but not collections of shares in the form of ETFs or funds.

1nvest
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Re: CHY

#331987

Postby 1nvest » August 9th, 2020, 4:34 pm

Alaric wrote:
1nvest wrote: But I'm not even sure whether that's even possible nowadays (to hold non reporting US funds inside a ISA?).

As well as complications from a non-reporting status, you may also have the problem that platforms are required to tell you to read the key features in the form of KIDs or KIIDs. Funds not marketed in the UK wouldn't normally bother to prepare these. So you might not be able to buy even outside an ISA.

It's a distorted world of investor protection where individual investors can buy individual shares on US markets but not collections of shares in the form of ETFs or funds.

Thanks Alaric

Another concern is that I believe that the US is increasingly progressing Estate Tax. I think before it was something like $6M allowance for US citizens with the same being applied to UK citizens under the tax treaty, but that was revised a few years back and the allowance may now be just $60,000 ?? (whilst for US citizens its risen to $11M). I guess in striving to 'kill off' funds (and derivatives such as leveraged ETP's) that US assets direct ownership tracking (and hence tax revenues) will be simplified.

And come 1st January 2021 (Brexit), who knows, it could all change yet again. Not so bad for smaller amounts, but if you'd accumulated deferred capital gains/larger amounts and have to move/change things around !!

One option might be to open a US based brokerage account, or something like one based in Singapore. But then I guess HMRC will be all over you. Maybe the future is being directed back to being direct share holdings. Not surprised, as I'm pretty sure that many funds contort things - such as multiple offices in different countries with one office 'lending' shares to another for a day or two just prior to ex-div if the dividend can be more tax efficiently collected in doing so.

Fundamentally a reversal back out of 'globalisation'.

PinkDalek
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Re: CHY

#332005

Postby PinkDalek » August 9th, 2020, 5:52 pm

1nvest wrote:Is my understanding correct that outside of a ISA, in a standard trading account and for a 20% basic rate taxpayer the dividends would incur just a further 5% tax payable to HMRC in reflection of the 15% US dividend withholding tax already paid?


Ignoring the investment itself, if the dividend income is fully taxable (ignoring reliefs/bandings for the moment***), the UK Income Tax payable would be 7.5% (2020-21) on the gross, in addition to the WHT already deducted.

See https://www.gov.uk/tax-on-dividends.


1nvest wrote:Fundamentally was thinking about dropping £12K/year of income production amount (so around £120K) into it back in March for one of my young-adult sons who as of yet has no other sources of income


At that level, your son should have no UK Income Tax liability as the (gross) income is less than the current personal allowance of £12,500 (2020-21).

See https://www.gov.uk/income-tax-rates

The 'as yet' is of course relevant. If that situation continues for 2020-21 then he's in effect lost the 15% which wouldn't have been a cost if he were to invest in an equivalent high yield UK equity (let's not go down that route though).

*** There is also presently a misnamed Dividend Allowance of £2,000. See the first link but I'll not go into further detail here as there are plenty of prior topic on the subject already.

Lootman
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Re: CHY

#332009

Postby Lootman » August 9th, 2020, 6:09 pm

1nvest wrote:One option might be to open a US based brokerage account, or something like one based in Singapore. But then I guess HMRC will be all over you.

If you are in a position to open a US brokerage account then there are several benefits. For a start there won't be any US income tax withholding. Secondly there will be no restriction on which funds you can buy or hold, other than non-US funds of course.

The problem is that I doubt that there is any domestic US broker who would let you open an account if you don't have a social security number and if you have a non-US address. You'd need some kind of residency to open one, I am fairly sure. Some UK nationals who have worked in the US on a H-1B visa can open an account while they are living in the US, and do not have to close it when they leave. Or maybe if you have some kind of business activity in the US.

But then of course you might have to worry about the US tax authorities.

I don't know anything about Singapore but if they allow UK nationals to open brokerage accounts then that might work. I do not believe that you are obliged to tell HMRC about any foreign account. You just have to declare any income and gains from that account, in the same way that you would for a UK account.

1nvest
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Re: CHY

#332039

Postby 1nvest » August 9th, 2020, 7:52 pm

EU rules, that by the looks of it the UK is going to roll into its own version that mirrors the EU's after Brexit, prevent buying, but you are permitted to continue to hold existing holdings, or sell existing holdings. Apparently however to add to holdings one workaround is to buy the Call Options (search for the cheapest option premium + strike price combination), and then Exercise the Call Options to take delivery of the shares.

Only trouble for CHY ... https://www.nasdaq.com/market-activity/ ... tion-chain ... there's no option chain available :(

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Re: CHY

#332077

Postby EmptyGlass » August 10th, 2020, 9:08 am

Lootman wrote:
1nvest wrote:One option might be to open a US based brokerage account, or something like one based in Singapore. But then I guess HMRC will be all over you.


The problem is that I doubt that there is any domestic US broker who would let you open an account if you don't have a social security number and if you have a non-US address. You'd need some kind of residency to open one, I am fairly sure. Some UK nationals who have worked in the US on a H-1B visa can open an account while they are living in the US, and do not have to close it when they leave. Or maybe if you have some kind of business activity in the US.


For info : my wife has opened a US broker account with Merrill Lynch earlier this year, & Schwab a couple of years ago. She has never lived/worked in the US, & used her UK NI number.

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Re: CHY

#332165

Postby Lootman » August 10th, 2020, 2:10 pm

EmptyGlass wrote:
Lootman wrote:
1nvest wrote:One option might be to open a US based brokerage account, or something like one based in Singapore. But then I guess HMRC will be all over you.

The problem is that I doubt that there is any domestic US broker who would let you open an account if you don't have a social security number and if you have a non-US address. You'd need some kind of residency to open one, I am fairly sure. Some UK nationals who have worked in the US on a H-1B visa can open an account while they are living in the US, and do not have to close it when they leave. Or maybe if you have some kind of business activity in the US.

For info : my wife has opened a US broker account with Merrill Lynch earlier this year, & Schwab a couple of years ago. She has never lived/worked in the US, & used her UK NI number.

Interesting. One thing that US financial institutions will do automatically with any applicant is run a US credit check. I would have thought that alone would stop the application.

A UK NIC happens to have the same number of characters as a US SSN, so an automated check might allow that I suppose. Although a NIC has letters in it whilst a SSN is all numeric.

If it had happened once then I'd probably think it was a fluke, but since it happened twice maybe you are onto something. Both of those brokerages have London offices, if that makes a difference - Merrill Lynch is now part of Bank of America.

So no tax withholding?

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Re: CHY

#332499

Postby EmptyGlass » August 11th, 2020, 8:49 pm

Lootman wrote:
EmptyGlass wrote:
Lootman wrote:The problem is that I doubt that there is any domestic US broker who would let you open an account if you don't have a social security number and if you have a non-US address. You'd need some kind of residency to open one, I am fairly sure. Some UK nationals who have worked in the US on a H-1B visa can open an account while they are living in the US, and do not have to close it when they leave. Or maybe if you have some kind of business activity in the US.

For info : my wife has opened a US broker account with Merrill Lynch earlier this year, & Schwab a couple of years ago. She has never lived/worked in the US, & used her UK NI number.

Interesting. One thing that US financial institutions will do automatically with any applicant is run a US credit check. I would have thought that alone would stop the application.

A UK NIC happens to have the same number of characters as a US SSN, so an automated check might allow that I suppose. Although a NIC has letters in it whilst a SSN is all numeric.

If it had happened once then I'd probably think it was a fluke, but since it happened twice maybe you are onto something. Both of those brokerages have London offices, if that makes a difference - Merrill Lynch is now part of Bank of America.

So no tax withholding?


W8-BEN filed but statements show dividends 'Federally Taxable' & form 1042S shows 'Federal tax withheld : xxxxx.xx' & tax rate 15.00 .


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