Investing in foreign shares or fund? The tax on dividends explained

UK residents are taxed on their income and gains, and this will include dividends from international shares. While your AJ Bell ISA and SIPP wrappers shelter your investments from UK income and capital gains tax, there may still be other tax considerations related to foreign investments, even if they’re held in these wrappers.

This article will teach you about withholding tax, and the rules you need to know if you’re using your AJ Bell accounts to buy shares in the international markets we offer.

What is withholding tax?

Withholding tax can be applied by an overseas government on investment income received by non-residents of that country. This can include dividends payable from overseas shares held directly or within a fund.

Withholding tax can apply on shares of overseas companies, even if they are listed and trade on the London Stock Exchange. That’s because where the company is incorporated and resident counts for withholding tax, rather than where its shares are traded. Examples of London-listed shares in this situation include airline parent company IAG (Spain) and miner Glencore (Switzerland).

You’ll see withholding tax described as being deducted ‘at source’. This simply means that the tax is collected (or withheld) at the point of payment and paid directly across to the government of the overseas country.

If the UK has a double tax treaty with the overseas country from which the dividend is paid, this might help you reclaim all or part of any withholding tax. Where the foreign dividends would also be subject to UK income tax, such as in a Dealing account, you might also be able to claim a credit for foreign tax paid.

Do you offer an overseas tax reclaim service?

AJ Bell does not offer a foreign withholding tax reclaim or reduction service. To reclaim refunds of overpaid withholding tax on most foreign dividends will mean consulting the double taxation treaty between the UK and the relevant country and claiming in each jurisdiction.

The good news is that for North American shares, the forms you must complete before dealing in these markets means that you’ll benefit from lower ‘tax treaty’ rates of withholding tax. These are currently reduced to 15% for ISAs and Dealing accounts. Our SIPP wrapper is recognised by both the US and Canadian authorities, meaning no form is required to benefit from 0% withholding tax on directly held shares.

Claiming a tax credit to offset a UK tax liability

You might be able to offset all or part of any direct withholding tax you’ve paid against your UK income tax liability.

UK residents are taxed on dividends from investments held in Dealing accounts outside ISAs and SIPPs. Depending on your other income, for the 2026/27 tax year the dividend tax rate may be 10.75%, 35.75% or 39.35% above the £500 dividend allowance and this will include foreign dividends that might have already suffered withholding tax.

Your Dealing account annual tax summary will list income received from international shares. If you’ve paid withholding tax in the country where the shares are based, you may be able to claim relief, so you don’t suffer double taxation on that dividend. For UK resident investors, this will be a credit against UK tax, so will be limited to the lower of the foreign tax paid (or allowed by a double taxation agreement) and the amount of UK tax that would be due on the dividend.

This is a complicated area, and will depend on your individual circumstances, so it’s important to seek qualified advice if you’re unsure.

What about funds that invest in international shares?

Along with UK authorised unit trusts and open-ended funds, many exchange-traded funds (ETFs) that can be held in UK ISAs and pensions are domiciled in Ireland or Luxembourg.

A fund is treated as its own legal entity, meaning withholding tax might be incurred depending on where the fund is domiciled. When it comes to US shares, that could mean that withholding tax might still be deducted, even if the ETF is held in a UK pension wrapper which gives protection for individual US company shares. It’s also unlikely that you’d be able to claim any credit against your UK tax liability as the SIPP wrapper shields the investment from UK taxes.

Synthetic ETFs work slightly differently, because they use synthetic replication to generate returns, rather than owning the underlying shares. They hold substitute assets which help to shield them from withholding tax on their overseas share holdings. Although most synthetic ETFs take steps to manage and mitigate additional risks, such as counterparty risk, it’s important to check you’re comfortable with what you’re investing in and how returns are generated.