Investing in US Equities as a UK-Based Investor

The United States equity market is, by most measures, the world's most important. It represents approximately 60 to 65% of the MSCI World Index by market capitalisation, is home to the world's largest technology, healthcare, and consumer companies, and has delivered higher long-run total returns than any other major developed market. For UK-based investors, it also comes with specific complexities: dividend withholding tax, access restrictions on US-listed ETFs, USD currency exposure, and concentration risk from a handful of dominant companies. This guide addresses each of these in turn.

Why US Equities Belong in a Globally Diversified Portfolio

The case for US equity exposure is largely self-evident from the data. Over the 20 years to 2026, the S&P 500 has delivered approximately 10 to 11% per annum in USD terms on a total return basis (dividends reinvested). UK equities (FTSE All-Share) have delivered approximately 7 to 8% total return over the same period. Global ex-US equities have underperformed significantly over the same timeframe.

Past performance is not, of course, a guide to future returns — and the outperformance of US equities has been driven substantially by a period of expanding price-to-earnings multiples and the extraordinary growth of a handful of technology companies. Whether this continues is genuinely uncertain.

Nonetheless, the structural arguments for the US market remain compelling: deep and liquid capital markets, strong corporate governance standards, the world's reserve currency, the largest consumer market, and a concentration of global technology and innovation. A globally diversified investor should have meaningful US equity exposure; the question is how much, via what vehicle, and with what consideration for the UK-specific tax and access issues.

How to Access US Markets from the UK

UK investors have several practical routes to US equity exposure:

Direct share dealing through UK stockbrokers: platforms such as Hargreaves Lansdown, AJ Bell, Interactive Investor, and Interactive Brokers allow UK investors to buy US-listed shares directly in dollars. Settlement is standard (T+2). Currency conversion fees apply. Well-suited for direct stock picking.

UK-listed (UCITS) ETFs: this is the most efficient route for most UK investors seeking broad US market exposure. The PRIIPS KID regulation means that US-domiciled ETFs (e.g., SPY, QQQ, VOO listed on US exchanges) cannot be sold to UK retail investors without the preparation of a Key Information Document, which US issuers do not provide for their US-listed products. The practical workaround: buy UCITS-equivalent ETFs listed on London Stock Exchange or Euronext. The major examples:

• iShares Core S&P 500 UCITS ETF (ticker CSPX on LSE, in USD; CSP1 in GBP) — one of Europe's largest ETFs, tracking the S&P 500 at an OCF of around 0.07%.
• Vanguard S&P 500 UCITS ETF (VUSA on LSE in GBP; VUSD in USD) — similar exposure, similar cost.
• HSBC S&P 500 UCITS ETF — ultra-low cost alternative.
• For Nasdaq 100 exposure: iShares Nasdaq 100 UCITS ETF (CNDX); Invesco QQQ UCITS (EQQQ).

SIPP and ISA wrappers: both UCITS US equity ETFs and direct US shares (in the case of many ISA providers) can be held within a Stocks and Shares ISA or a Self-Invested Personal Pension. Holdings inside a SIPP or ISA shelter income and gains from UK income tax and CGT. The withholding tax issue (below) applies regardless of the wrapper.

The 15% US Withholding Tax on Dividends

This is an often-overlooked cost for UK investors. Under the US-UK Double Taxation Agreement (DTA), US dividends paid to UK investors are subject to US withholding tax at a reduced rate of 15% (rather than the default 30%). This withholding applies to:

• Direct holdings of US shares.
• US equity ETFs domiciled in the US (if you could buy them — most UK retail investors cannot).
• UCITS ETFs domiciled in Ireland or Luxembourg: the fund itself receives dividends from US companies and will reclaim withholding tax under the Ireland-US or Luxembourg-US DTA, depending on the treaty. For most UCITS ETFs, the effective withholding rate is around 15% at fund level, meaning that approximately 85% of the gross US dividend flows into the fund. This drag is already reflected in the ETF's net return.

The ISA complication: in theory, holding US shares in an ISA eliminates UK income tax and CGT. But it does not eliminate US withholding tax. The 15% US withholding on dividends is deducted at source, before the dividend reaches your ISA. You cannot reclaim it against ISA income because there is no UK tax against which to credit it. In a direct general investment account (GIA), the 15% withholding can be credited against your UK income tax liability on the dividends — so a higher-rate taxpayer is essentially paying only the marginal UK rate (not 15% + UK tax). In an ISA, the withholding is an irrecoverable dead cost.

For investors in US dividend stocks, the ISA withholding leakage is a real consideration. It does not undermine the ISA's overall superiority for most investors (given the CGT shelter on growth stocks), but it is worth noting.

The W-8BEN Form

To claim the reduced 15% withholding rate under the US-UK DTA (rather than the default 30%), non-US investors must certify their non-US status and treaty eligibility by completing Form W-8BEN. This form is submitted to the paying agent (the broker or fund custodian), not to the IRS.

For most UK investors holding US equities through a major UK broker or platform, the W-8BEN is collected automatically at account opening. The form is valid for three years before renewal is required. If you hold US investments at multiple institutions, ensure each has a valid W-8BEN on file.

USD Currency Exposure

Investing in US equities introduces USD/GBP exchange rate exposure. If the US market rises 10% in USD terms but GBP strengthens 5% against the dollar over the same period, your GBP return is approximately 5%, not 10%.

GBP/USD has historically been highly variable: it ranged from approximately 1.07 (the September 2022 "mini-budget" lows) to 1.70+ over the past 15 years. That is a significant range. Currency risk for UK investors in US equities is real.

Currency-hedged ETFs: iShares and other providers offer GBP-hedged versions of US equity ETFs (e.g., iShares S&P 500 GBP Hedged UCITS ETF). These use currency forward contracts to remove the USD/GBP exposure. The cost of hedging is approximately equal to the interest rate differential between USD and GBP — in recent years, with US rates higher than UK rates, hedging costs have been around 0.5% per annum. This reduces GBP returns relative to an unhedged exposure.

The question of whether to hedge is genuinely contested:

• Over very long time horizons (20+ years), most academic evidence suggests that currency exposure in developed market equities averages out and hedging is unnecessary.
• For shorter time horizons, or investors with specific GBP liability needs, hedging reduces volatility.
• Most long-term investors accept the currency exposure rather than pay hedging costs; most short-term or liability-driven investors hedge.

Concentration Risk in the Modern S&P 500

The S&P 500 is a market-capitalisation-weighted index of 500 US companies. In recent years, it has become significantly concentrated in a small number of very large technology companies. As of 2026, the top ten companies (commonly including Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta, Tesla, Berkshire Hathaway, and others) represent approximately 30 to 35% of the entire index.

The "Magnificent Seven" phenomenon — seven dominant tech companies accounting for a disproportionate share of the index's return — means that a passive S&P 500 investor is more concentrated than the 500-stock count implies. In years when these companies underperform, the index underperforms significantly.

Diversification strategies within US equities:

• Equal-weight S&P 500: an ETF that weights each of the 500 companies equally, rather than by market cap. This reduces concentration in the mega-caps. The Invesco S&P 500 Equal Weight UCITS ETF provides this exposure.
• Value factor exposure: US value stocks (lower P/E, lower price-to-book companies) have historically shown lower correlation to the mega-cap growth names. iShares MSCI USA Value Factor UCITS ETF provides this tilt.
• Small and mid-cap exposure: the Russell 2000 index covers US small-cap equities. Small-cap US companies have less global revenue and are more domestically exposed. UCITS equivalents: iShares MSCI USA Small Cap UCITS ETF. Small caps typically have higher expected returns over long horizons but with more volatility and lower liquidity.
• Sector diversification: a US technology-heavy portfolio can be balanced with US healthcare, US industrials, or US financials sector ETFs.

Tax Considerations for UK Investors in US Equities

Capital Gains Tax: gains on US equities held in a GIA are subject to UK CGT (18% basic rate, 24% higher/additional rate, as of 2026). The annual CGT allowance was reduced to £3,000 for 2024/25. Losses in US equities can be offset against gains elsewhere.

Income Tax on dividends: US dividends paid to UK investors, net of 15% withholding tax, are assessable as foreign dividends. The £500 dividend allowance (2024/25) covers the first £500 of all dividend income. Beyond that, UK income tax applies at 8.75% (basic), 33.75% (higher), or 39.35% (additional). The US withholding tax can be credited against the UK liability (not refunded if it exceeds UK tax due).

Estate tax: US citizens and domiciliaries face US estate tax on US assets. UK domiciled individuals do not face US estate tax on US-situs assets unless they are also US citizens or green card holders. Non-US, non-dom investors with large US portfolios should take specific advice.

SIPP and ISA: tax-free within the wrapper for UK purposes. Withholding tax leakage on dividends applies as noted above.

Building a Practical US Equity Position

For most UK-based investors with a global equity allocation, a simple approach works well:

A single global UCITS ETF (such as iShares MSCI World or Vanguard FTSE All-World) will provide circa 60 to 65% US equity exposure automatically, alongside developed and emerging market exposure. This is the simplest approach for the passive component of a portfolio.

Investors who want to actively manage US exposure — tilting toward value, small cap, or equal-weight — can do so alongside the global ETF, using sector or factor ETFs to adjust the overall tilt.

Direct US stock picking should be reserved for those with genuine research capability and understanding of US-specific accounting and governance standards.

The value of investments in equities can fall as well as rise. Past performance is not a reliable indicator of future results. Currency fluctuations can affect returns. This guide is for information purposes only and does not constitute financial, tax, or legal advice.

How Global Investments Can Help

Global Investments advises internationally mobile clients on US equity exposure within the context of a globally diversified, tax-efficient portfolio. We can help structure your US equity allocation within appropriate wrappers (ISA, SIPP, offshore bond, GIA), select cost-effective UCITS vehicles, address withholding tax considerations, and integrate US equity exposure with your overall asset allocation and currency management strategy. Contact our investment team to discuss your requirements.