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Investing stateside: How to buy US shares in the UK

Karl 14th Apr 2023 No Comments

Reading Time: 6 minutes

Investing in US shares can be a good way to gain exposure to some of the biggest and most successful companies in the world. From tech powerhouses such as Apple and Microsoft, to retail giants like Walmart and Amazon, the US stock market is certainly synonymous with the spirit of capitalism.

But for many people, the process of buying US shares can seem daunting or unfamiliar. So, in this article, we’ll guide you through the steps on how you can invest in companies across the pond. Keep reading for all the details or click on a link below to jump straight to a specific section…

What are popular US shares to buy?

“Everything’s bigger in the USA…”

While the phrase may not be true for absolutely everything, there’s no doubt the US stock market is the largest in the world.

Take a look at some of the constituents of the Dow Jones, for example, and you’ll find a host of big-name corporations spanning a huge variety of industries, from healthcare to technology to finance.

According to data from IG – a broker that allows UK investors to buy US shares directly – Apple, Tesla, Microsoft, Meta, and Amazon, are the five most widely held amongst its customers.

Other US companies popular with IG’s British-based customers include Berkshire Hathaway, Alphabet (owner of Google), NVIDIA, Exxon Mobil, and Verizon Communications.

What is the difference between US and UK shares?

It’s worth knowing that not all US-listed firms are American. For example Alibaba – a Chinese multinational technology company – is listed on the New York Stock Exchange (NYSE).

Similarly, Manchester United is also listed on the NYSE. (If you’re interested in investing in the beautiful game, take a look at our article that explores how to invest in football clubs).

Despite these examples, however, the majority of firms listed on US stock exchanges are unsurprisingly American. So, if you’re interested in putting your faith in US-listed companies, it’s worth understanding the following differences between US and UK shares.

1. US share prices are often higher

In the (good ol’) U.S. of A, it typically costs a lot to buy individual shares compared with the UK.  For example, it’s not uncommon for a single US-listed share to cost a few hundred dollars. This is very different to the UK, where individual shares can often be snapped up for a few pounds.

This doesn’t mean US shares are necessarily more valuable than their British counterparts, it’s just the way they are priced. However, if you’re an investor who doesn’t have lots of capital, then high share prices can pose a problem. Fortunately, however, there are brokers that allow the purchase of fractional shares.

2. Results are released at different times

Companies in the USA commonly release their quarterly results after the stock market closes for the day. This contrasts with the UK, where results are typically released in the morning. This isn’t really a biggie, but certainly something to be aware of if you’re looking to trade US stocks.

3. Market opening times are different

Across the pond the stock market is typically open from 9.30 am to 4pm Eastern Time (ET). (While it depends on the time of year, ET is usually 5 hours behind Britain.)

This of course means that UK-based investors can buy US stocks after the UK stock market has closed. It also means, of course, that the US stock market isn’t open for business until well after midday in Britain.

It’s worth knowing that some brokers will allow you to place an order for US stocks outside of market hours.

4. You buy US shares in dollars, not pounds

It may be stating the obvious but when you buy US shares, you’ll be buying them in dollars. Because of this, you’ll have to factor in any foreign exchange fees that may apply to your purchase.

As the USD/GBP exchange rate can be volatile, it’s really important to understand that buying shares in dollars carries a risk you’ll lose out should the dollar weaken against the pound when the time comes to sell you shares. Of course the opposite is also true: if the dollar strengthens against the pound between the time you’ve bought and sold your shares, this will be in your favour.

How do you buy US shares in the UK?

As long as your broker allows you to buy US-listed shares – not all do – then there isn’t too much difference between buying and selling US shares compared with buying and selling UK shares.

Some brokers that allow you to buy US-listed shares include Freetrade, Etoro, IG, Degiro, and Fineco. These providers all charge different fees, so do your own research . The fees you pay may depend on your investing style (See our article: share dealing fees vs platform fees: which is more important for investors?)

Once you’ve found a broker that allows you to buy US shares you can simply search for the company you wish to invest in on your chosen platform. While you may not find every US-listed share, you’ll almost certainly have no problem finding the big American blue-chips, such as Apple, Microsoft, Amazon, Tesla, etc.

To learn more about the process of investing, take a look at our article that explains how to buy shares.

Investing in a US share index

If you want to invest in individual companies, then you can follow the steps above. However, if you’d rather exposure to multiple American firms, then you may wish to explore buying an index fund or an exchange-traded fund that tracks a major US index.

The major US indexes include the the Dow Jones Industrial Average (DJIA), the S&P 500, and the Nasdaq 100.

The DJIA includes 30 large-cap companies chosen by editors of the Wall Street Journal. The S&P 500 tracks 500 of of the largest companies listed on the NYSE. The Nasdaq 100, meanwhile, focuses on stocks listed on the Nasdaq stock exchange which includes a number of high-tech stocks.

What is a W-8BEN form?

Taxes work differently in the US than the UK. In the US, dividends are taxed at 30%. Thankfully, however, UK invetors holding US stocks can reduce the amount that needs to be paid to Uncle Sam by completing a ‘W-8BEN’ form.

W-8BEN is a form issued by the Internal Revenue Service, the US equivalent of HMRC.

The form can serve as evidence that you aren’t a US resident for tax purposes. This will enable you to apply for a reduced tax rate on any income earned within the US.

So, if you complete a W-8BEN form and then buy a US stock that pays dividends, you’ll only have to pay 15% tax on it, rather than the standard 30%.

Whether you hold your US shares in a stocks or shares ISA, or a general investment account, you’ll still have to fill a W-8BEN form. In other words, an ISA won’t protect you from paying US dividends tax.

However, US shares held in a self-invested personal pension (SIPP) won’t be liable for any US dividends tax. This means that if you only hold US-listed shares in a SIPP, you won’t have to fill out a W-8BEN.

A W-8BEN is valid for three years, unless you transfer your investments to another provider – in which case you’ll have to fill out a new form.

Is it a good idea to buy US shares?

Buying shares in US-listed firms certainly isn’t without risk. US dividends tax and the cost of trading in a foreign currency are just two things you’ll need to pay attention to.

However,  if you feel buying shares in American firms is right for you then it could be a good way to diversify you portfolio, especially if you don’t have much confidence in the UK economy over the next few years!

To learn more about why it can be beneficial to mix things up when it comes to investing, take a look at our article that explains the benefits of having a diversified portfolio.

To learn more about investing, do sign up for our fortnightly MoneyMagpie Investing Newsletter.

When it comes to any type of investing, be mindful that your capital is at risk. Remember,
the value of any investment can both rise and fall.

Disclaimer: MoneyMagpie is not a licensed financial advisor. Information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.

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Jasmine Birtles

Your money-making expert. Financial journalist, TV and radio personality.

Jasmine Birtles

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