How are UK investors taxed on US options trading?
10 April 2025
Question by Nicola
I need advice on tax in relation to options trading in the US. I'm aware that by filling in a W8BEN form, withholding tax is reduced to 15%. How much tax would I need to pay in the UK from profits made? Are there any ways to avoid paying high tax, as it seems unfair to pay the US 15% and then pay whatever it is for the UK, effectively paying twice? Can I even avoid paying the US 15%?
Answered by Boring Money
US tax is fiendishly complicated. Most US people need intermediaries to fill in their annual tax returns, and the rules around foreign tax payments are equally impenetrable. At Boring Money we have no unique insight into this, but we have done some digging and this is what we’ve found.
If you receive interest, dividends, royalties or any other income from a US source, you are correct that you need to fill in a form W-8BEN. If you don’t, the US tax authorities will assume you are a US taxpayer and apply a 30% withholding tax.
The W-8BEN form is used by non-US individuals who receive income from the United States. This form is used to provide evidence that the individual is not a US person and gives the individual’s foreign Tax Identification Number (TIN), if any. For UK nationals, this is usually your National Insurance number. We found this piece useful.
The form is used to request that a lower rate of US federal withholding tax be applied. To do so, it will include details of the relevant tax treaty article - tax treaties are agreements between two countries that aim to avoid double taxation and promote economic cooperation - and how the individual qualifies. For UK residents, Article 10 of the US/UK tax treaty will see the rate of withholding tax reduced to 15% or 0%, depending on the circumstances. In your case, trading income attracts withholding tax of 15%.
You should be able to claim Foreign Tax Credit Relief on your tax return to ensure that you’re not paying more tax than you would if the gains were generated in the UK. The details are here.
In terms of how much you’d pay in the UK, these gains are likely to be taxed as capital gains. Therefore, the rate depends on your other income and marginal income tax rate. Here is some more detail on the taxation of trading profits.
Again, we are not tax experts and becoming embroiled in the US tax system brings real complexity. If the gains are large enough, it may be worth seeking the help of a professional to help you navigate your liabilities and minimise tax.
