How to buy US shares in the UK

Buying US shares from the UK

If you want to buy US shares from the UK, you don’t have to pack a suitcase and book a flight across the Atlantic. 

It's really just the same as buying UK shares, you just have to be aware of a few differences in things like transaction costs and taxes. Fear not though, we’ll clear it all up so you’re free to buy whatever US shares you like.

Why invest in US stocks?

There are plenty of reasons you might want to invest in US stocks. For starters, you’ve probably heard of a lot of firms listed in the US.

Size isn’t everything, but the US is big. America is home to the two largest stock exchanges in the world, which means the country has a lot of massive, well-known companies on its exchanges. There are thousands of investments you could make.

Just because a company has a large market cap doesn’t make it a good investment though. When you’re deciding to buy shares in a company, no matter how big or small, there are a lot of key considerations to keep in mind. 

Everyone has their own goals and individual financial circumstances. These, along with your tolerance for investment risk and time horizon, should inform the mix of assets you choose and whether or not US or UK stocks belong in your portfolio.

Our resource hub for investing in the stock market might be able to help make that blend a bit clearer for you and our guide on how to buy shares is a great start for a first-timer's investment decisions. 

And if you are still unsure of how to pick investments, speak to a qualified financial advisor to develop your investment strategy. 

‍

Can I buy US shares in the UK?

You don’t need to be American to buy shares in American companies. You also don’t need to open a US brokerage account to buy US stocks.

You can buy them right here in the UK. UK banks and brokers have accounts where you can buy US shares on this side of the pond. 

Steps to buying US shares in the UK

Not all brokers will offer a complete line-up of US shares though, and some may just have the most popular stocks from an index like the S&P 500. Or, they may just carry ETFs tracking a wide range of American firms. That’s why the first step to buying US shares in the UK is to compare your options for brokerage accounts.

This is a simplified list of what you can expect when investing in US stocks from the UK.

1. Compare different brokerage accounts to decide which one best suits your investing habits and platform needs. Our investment fees calculator can help you understand the charges you might face.
2. Open a stocks and shares brokerage account with your broker of choice. You might want to factor in tax efficiencies here. Think about whether a GIA, ISA or SIPP could help. 
3. Fill out your W-8BEN form. With Freetrade, you can do this in-app. This is the relevant tax form to confirm that you aren’t a US tax resident, which can reduce the amount of US dividend tax you pay. 
4. Pick the US shares you want to buy. Our stock list outlines all of your options for UK and US stocks to invest in with Freetrade.
5. Buy the US shares. Once you’ve decided on the US shares you’d like to invest in, make sure to look out for any applicable fees. For instance, FX fees can arise when you pay to convert GBP to USD, so keep an eye on these when you’re making investments.
   

Now we’ll take a deeper dive into what those steps look like, and what some of your options are to invest in US stocks from the UK.

‍

What kind of US shares can I buy?

The US is home to 13 stock exchanges, but the main ones are the National Association of Securities Dealers (NASDAQ) and the New York Stock Exchange (NYSE).

Sources: NASDAQ, NYSE and Statista, as at December 2021.

‍

US stock market opening hours

Both the NASDAQ and NYSE operate on Eastern Standard Time (EST). These exchanges are open weekdays from 9:30 am to 4:00 pm. As for trading US stocks from the UK, that’s equivalent to 2:30 pm to 9:00 pm for those who live in a Greenwich Mean Time (GMT) zone.

Both have pre-market and post-market trading as well. Though there can be additional risks involved during these extended trading hours. 

Price volatility tends to be greater because of the lower number of market participants at those hours. Usually, any activity occurring during pre and post- hours is a reaction to a stock’s news (especially headlines coming out of European timezones). 

‍

Most popular US stocks

‍Source: 10 most popular US ISA buys for 2021 on Freetrade. *Note that VUSA and VUAG are S&P 500 index trackers which are listed on the London Stock Exchange (LSE). 

The majority of last year’s most bought stocks on the Freetrade app were American-listed companies, most of which are in the technology sector, which the US is famed for. 

Because of the success of many of the country's largest technology firms, the sector makes up a large portion of the overall market. As of 31 December 2021, the tech sector made up 29% of the VUAG ETF, which tracks the S&P 500.

It’s important to note that this ETF is traded on the London Stock Exchange and priced in GBP. So although it’s tracking an American index, exchange rate fluctuations between the GBP and USD could impact the performance of this ETF. 

Another thing to keep in mind is that the tax implications for a UK-based ETF are different than for a US-based investment. We dive into the impact of currencies and the reason UK-based ETFs are how retail investors can access US tracking ETFs later on in this piece - so stay with us!

As tech stocks tend to trade on rich valuations, due to their perceived attractive prospects, they can lift the valuation of the entire market.

This is one of the reasons that the US market has been historically viewed as more expensive than its European brethren.

Beyond tech stocks, VUSA and VUAG were also popular buys among users. Though, given both track the S&P 500, whose largest constituents are technology companies, investors in these vehicles are getting a hefty underlying exposure to the sector.

The difference between VUSA and VUAG is the way that income is distributed. Investors in VUSA will have dividends distributed to them. This can be useful to supplement an income, or if you have regular expenses you need help with.

VUAG reinvests those dividends instead. So these investors would be taking advantage of the power of compounding. 

According to Hartford Funds, an initial £10,000 invested in the S&P 500 over the 60 years from 1960 to 2020 would have grown to $627,161 in price terms, or $3,845,730 with dividends reinvested. Dividends are incredibly important to the value of total returns.

Past performance is not a reliable indicator of future returns.

Source: FE, as at 11 Feb 2022. Basis: bid-bid in local currency terms with income reinvested.

Do you buy US stocks in pounds or dollars?

US shares are bought and sold with US dollars. But if you don’t have a US dollar account filled with Benjamin Franklins, that’s no problem.

If you were to buy a share in Tesla from a UK trading account, your broker would take the money from your account and convert it into US dollars. Then, your broker would use the US dollars to buy the share.

If you then decided to sell the share, the proceeds would be converted from the foreign currency back to your home currency before they ended up back in your trading account.

‍

How much does it cost to buy US shares?

Because your trade takes place in US dollars, as a UK investor, you’re exposed to fluctuations in foreign exchange rates. 

Let’s say you buy a share in a US company and the US dollar appreciates relative to the British pound. Even if the share price hasn’t changed, the US share is technically worth more to you, purely based on its currency appreciation. 

But if the US dollar depreciates relative to the British pound, that share would be worth less to you as a British investor. 

The value of currencies can fluctuate in any given year. So when you invest in US shares from the UK, this is an added risk to bear in mind.

Foreign exchange (FX) charge

The foreign exchange (FX) charge is what your broker charges you to convert your currency into a different currency. It’s a currency exchange fee, and in our instance, it’s what you’d pay to convert GBP to USD. 

As an investor, you’ll usually pay the spot rate (the current price exchange level in the market) in addition to the FX fee. FX charges will depend on the broker you use, and they’ll apply to the amount you are paying for the trade.

There are a few other things to consider when comparing the range of trading accounts out there to decide on the broker that’s best for you if you’re going to buy US shares.

The comparison is shown for illustrative purposes only. For confirmation of the most up to date competitor charges and product information you should visit their websites. Source: Freetrade, as at Feb 2022.

An additional fee to consider is the monthly cost to keep your account open. This is usually called a ‘platform fee’ and is basically just to keep the lights on. Depending on your provider, it doesn’t necessarily include the cost to trade stocks and shares. The charge could be based on a percentage of your investments, or just a flat fee that stays the same no matter how much you invest.

While it’s not a fee, another important consideration might be whether your broker offers fractional shares. You can think of these as a slice of a whole share. 

Last year’s most popular ISA stock bought by Freetrade users was Tesla. This year, Tesla’s share price has ranged from $2,000 to $829. For some investors, the cost of a full share is more than what they’re hoping to invest. If your broker provides access to fractional shares, you can buy a bite-sized proportion of the big chunk.

‍

‍Source: Koyfin, as at 11 Feb 2022. Basis: bid-bid in local currency terms with income reinvested.‍

Should I choose a commission-free investment platform?

As the ISA provider chart shows, the cost to make a trade can really eat away at your potential investment gains. 

That’s especially true if you’re starting off trading smaller amounts of money. Even if you’re making a gain, it might not be sufficiently large to cover the cost to buy or sell the share in the first place.

With Freetrade, you don’t pay a fee when you place a trade.

Here’s an example of how that shakes out.

Let’s say you had a starting portfolio of £5,000 with Freetrade and made 10 US trades per year. If each of those trades was for £500, your total fees for the year would be £59, made up of £36 in ISA fees and £23 in FX costs. 

‍

What taxes do you pay when buying US stocks in the UK?

There are a few different taxes to keep in mind when investing in US shares. To figure out which apply to you, you need to determine whether you’re a ‘nonresident alien’. Classic Americanism for a non-US citizen. The following taxes are relevant to UK investors who are non-US citizens.Remember that tax is as personal as it gets, so if you’re unsure about tax implications you should seek professional guidance.

‍

Dividend tax 

Dividend tax is what you pay on any income from your US investments. Freetrade deducts any dividend tax from US-sourced income in your General Investment Account (GIA) or ISA.

If you’re a non-US investor, you need to fill out the W-8BEN form. With Freetrade, you can sign this form directly in-app. 

The form declares that you aren’t a US tax resident, which reduces the amount of US dividend tax you pay on most shares from 30% to 15%. If you hold these shares in a SIPP, this tax can be reduced to 0% as well. 

Remember VUSA and VUAG? The two examples of UK-based ETFs tracking US-based we pointed to earlier on. Both would benefit from the reduced 15% tax rate, which in turn, you can take advantage of as an investor too.

But not all US-listed stocks are US-based companies. For example, you can buy shares in Shopify on the NYSE but the company is headquartered in Canada. If Shopify were to issue dividends (it hasn’t, but for the sake of the example, stay with us!) you would pay Canadian dividend tax instead. 

That’s because the company resides in Canada, even though it’s listed on a US exchange. Freetrade will automatically apply this dividend tax to your investments as well.

You also might recall earlier on when we pointed to UK-based ETFs tracking US-based companies. VUSA and VUAG were two examples of these. These funds 

Dividend tax in ISAs

ISAs protect your UK investments from owing tax. But ISAs don’t help in the same tax-efficient way on your foreign investments. So if you receive US dividends in your ISA, the 15% tax will apply. With Freetrade, this all happens automatically, and you won’t be left with any forms to fill or paperwork to file.

Capital gains tax

If you’ve filled out the W-8BEN, you won’t pay US capital gains tax in the US, but you might owe it to her majesty’s revenue collection if your US shares are not inside a tax-efficient wrapper. 

If you’ve held these US shares in your GIA, you’ll need to calculate what your gain was and whether it falls within your capital gains allowance (CGA) for the tax year. Your brokerage firm won’t withhold or calculate these capital gains taxes for you.

But, if your US investments are held in an ISA, you won’t have to pay capital gains on those US shares. You would just have the above mentioned 15% dividend tax, if applicable.

Buying US ETFs in the UK

As we saw earlier, ETFs were two of the 10 most popular buys among Freetrade investors in 2021. Though we also pointed out that these ETFs were listed on the London Stock Exchange (LSE), even though they track the American S&P 500 index.

UK retail investors can’t access ETFs based in the US. That’s because American ETFs don’t conform to a set of EU Undertakings for the Collective Investment of Transferable Securities (UCITS) regulations.

UCITS requires fund providers (including ETFs) to provide a Key Information Document (KID). This document is to help investors compare the risks, rewards and charges for different investments. Without the KID, US ETFs aren’t available to UK retail investors.

But that doesn’t mean you can’t buy a US ETF in the UK. Sophisticated investors on the other hand can access US ETFs. But it takes a lot more than showing up in your best threads to be classified as sophisticated. There are specific criteria in place to be deemed a certified sophisticated investor. These include a firm assessing your level of knowledge on the risk of the investment you’re considering. After this has been evaluated, an investor then signs a statement asserting these potential investments will expose them to a significant risk of losing all of their money invested.

But if you don’t fit the sophisticated investor bill, you can still access US-tracking indexes indirectly as a retail investor.

The easiest way is through UCITS-approved ETFs. VUSA and VUAG, the two ETFs we saw above, are UCITS certified. They both give you access to a US index tracker - without having to have a US brokerage account.

There are plenty more UCITS-approved ETFs on the Freetrade app as well, and many track US stocks too. We’ve got a full list of Freetrade’s ETFs ready for your browsing.

Can you buy IPO stocks in the UK?

Last year was a huge one for US IPOs.

Source: StockAnalysis annual IPO data.

In fact, it was the biggest ever. 

As an investor, there are a few ways you can get involved in a company’s initial public offering. The main ways are through the primary and secondary markets.

With most brokerages, you’re buying the stock after the IPO. You’ll use your share dealing account to buy shares in the company once it’s listed on financial markets. We also have a list of upcoming IPOs, so you can stay in the loop and buy shares when they do if you’re interested in investing in them.

As exciting as it is to invest in a company that’s new to the market, don’t let yourself get swept away in the flashiness of it all. When a company goes public, don’t forget to take a look under a firm’s bonnet before you give it some gas.

Really, that’s the case with any investment you make - no matter what country it comes from. Even in the Land of the Free.

Download the Freetrade investment app and join over 1 million UK retail investors that trust us already. See the most popular investments with a breakdown of the most traded stocks and most popular ETFs on Freetrade. Follow the IPO calendar and keep an eye on exciting new investment opportunities.