Glossary · UK
What is Withholding Tax?
Tax deducted at source before you receive income from overseas investments. UK investors can often reclaim excess withholding tax via a double taxation agreement.
Full Definition
Withholding tax is tax that a foreign government deducts at source from income (most commonly dividends, but also interest or royalties) before that income is paid to you as a non-resident investor. For example, if you hold US shares, the US imposes a 30% withholding tax on dividends by default. However, the UK/US double taxation agreement (DTA) reduces this to 15% for UK residents who have completed a W-8BEN form with their broker or fund platform. The W-8BEN certifies UK tax residency to the US paying agent. The difference between the treaty rate (15%) and the UK tax you actually owe on those dividends can often be credited against your UK tax liability as Foreign Tax Credit Relief, claimed via the Foreign pages of your Self Assessment return. Not all excess withholding can be reclaimed this way — it depends on the specific DTA between the UK and the source country. Notably, holding foreign shares inside a Stocks and Shares ISA does not eliminate withholding tax: the ISA wrapper only protects from UK tax, not tax applied in the source country before the dividend reaches you. Common withholding tax rates UK investors encounter include 15% from the US, 15% from Canada, 26.5% from Germany (with partial refund available), and 15% from Ireland. Investors in global ETFs may also suffer withheld tax at the fund level, reducing the return before it is distributed.