Oh god, what now? What now could be Part 899 of the One Huge Lovely Invoice – Trump’s monster-truck ‘tax and spend’ act at the moment bouncing across the halls of Congress.
Part 899 has been dubbed a ‘revenge tax’ as a result of it targets people, companies, and governments of overseas international locations who’re deemed to be hitting US entities with ‘unfair overseas taxes’.
International international locations like China, North Korea, and that island the place all of the tariff-loving penguins stay, proper?
Not essentially. Fairly probably overseas lands just like the UK, the EU, Australia and Japan. Plus anybody else who maybe had Huge Tech in thoughts after they drew up undertaxed earnings guidelines (UTPRs), digital companies taxes (DSTs), or diverted earnings taxes (DPTs).
How does Part 899 have an effect on ME?
Sure, I hear you.
The most probably influence on the time of writing is that you just, a person resident in a significant US buying and selling accomplice and ally, quietly increase your nest egg chock stuffed with American property, could possibly be on the hook to pay a increased charge of US withholding tax (WHT).
There could possibly be different spillover results too however I’m going to focus on essentially the most instant – and discuss how you might mitigate the worst, ought to it occur.
At the moment, withholding tax is due on revenue paid by US property to abroad homeowners.
Many Monevator readers already pay withholding taxes on US equities and bonds, though that’s not all the time obvious.
For instance, a non-US domiciled fund can pay withholding tax in your US revenue earlier than distributing the stability as dividends or curiosity (or reinvesting the money again into the fund.)
That’s a lot background. The nub of the issue is that anybody paying US withholding tax – whether or not immediately or not directly – could possibly be within the firing line.
WHT? WTF extra like
The principle charge of US withholding tax is 30%. It’s levied on revenue, not capital positive aspects.
Proper now, you’re sometimes in for 15% WHT on US securities held through an Irish-domiciled fund or ETF. You get 50%-off the primary charge attributable to a Double Taxation Settlement (DTA) that exists between america and Eire.
UK domiciled funds additionally qualify for the 15% withholding tax charge. Mighty Blighty has a take care of Uncle Sam, too.
Fund managers should actively declare the rebate, which I think about is very similar to wangling a present voucher out of your cell phone supplier: “Solely legitimate when accompanied by an authentic receipt, current dental X-ray, and proof of being inheritor to the throne…”
It’s generally accepted that Irish ETFs solely pay 15% WHT however it could be price checking the specifics if you happen to spend money on one other sort of fund.
Bought a portfolio of particular person US shares? Then fill in a W-8BEN kind to cut back your WHT charge to fifteen%.
Ideally maintain your portfolio of Made In America property in a pension or SIPP. Select the suitable platform and your SIPP scoops a 0% charge – no paperwork required.
What are the withholding tax hikes proposed beneath Part 899?
Part 899 goes from unhealthy to worse relying on which model of the laws we’re speaking about.
At the moment, one model has been handed by the US Home of Representatives and one other is because of be voted on by the Senate.
It’s price saying that the complete invoice continues to be topic to modification because it journeys by Congress. Part 899 shouldn’t be but set in stone.
However right here’s the place we’re at:
| Part 899 WHT | Home model | Senate model |
| WHT charge after phase-in | 50% | 15% to 45% relying on present treaty charges |
| Phased rise | 5% per yr | 5% per yr |
| DTA low cost impact | All charges rise 5% per yr till the 50% cap is reached. | DTAs cushion the blow e.g. Current 0% charge rises to max 15%. 30% charge rises to max 45%. |
A fast instance could assist you to higher perceive these proposals.
Let’s say you (or your fund) at the moment pays a 15% WHT charge on US dividends. On this case the Home plan will demand 50% of your revenue in yr seven after Part 899 is invoked.
That’s the ceiling charge. You’ll pay 50% from there on in (as will everybody else as soon as the 5% per yr phased hikes have completed their work.)
The Senate model nonetheless screws you, but it surely’s gentler, probably extra stylish. The beautiful senators jack the speed thrice and respect your DTAs.
F’r occasion, a 15% payer caps out at 30% after three years.
It’s nonetheless lower than excellent.
How unhealthy?
You possibly can estimate your lack of return by multiplying your funding’s dividend yield by your WHT share.
The S&P 500’s dividend yield is 1.3% in accordance with the present S&P Dow Jones factsheet. So your loss to withholding tax is roughly:
| WHT charge | 0% | 15% | 30% | 45% | 50% |
| Lack of return | 0% | -0.2% | -0.39% | -0.59 | -0.65% |
Thus if you happen to pay 15% WHT now, your dividend return is diminished from round 1.3% to 1.1%
The Home’s 50% revenge charge would lower your dividends in half. You’d be shedding 0.65% based mostly on the present yield.
That can add up over time.
Furthermore, the S&P 500’s yield is close to its historic low. A mean yield of 1.5% to 2% is extra typical.
The impact is worse nonetheless if you happen to’re invested in higher-yielding shares, comparable to a US dividend progress technique.
Run away?
It’s essential we don’t lose our heads.
No person needs to lose halve their dividend return, however right here’s what it will have seemed like (purple line) in comparison with the returns you really made investing within the S&P 500 this previous decade whereas paying 15% WHT (blue line).
Nominal USD annual whole return knowledge from Aswath Damodaran. Fund prices not included. June 2025.
Within the worst-case 50% WHT situation you’d have booked a 12.1% annualised return as an alternative of a 12.7% annualised return over ten years.
As I say: not nice. It does harm!
However you’d nonetheless have been higher off investing in US equities versus the World ex-US over this era, even when finally uncovered to the hardcore model of Part 899.
Tax tail meet funding canine
In fact we are able to argue that the S&P 500 would have been much less enticing to international buyers, or that US holdings will henceforth include larger political danger connected…
I’d signal as much as all of that.
However pre-emptively transferring now to down-weight the US in our portfolios solely on the idea of Part 899 appears to be like untimely to me.
For a begin the US is more likely to stay probably the most dynamic markets on the planet and attempting to guess what’s going to occur subsequent is a fools’ errand. Maybe now greater than ever.
Secondly, there’s an effective way to get round Part 899 – SHOULD IT HAPPEN. (Sorry concerning the all-caps, simply channelling my inside Trump there.)
The work round
There are #causes to assume you gained’t should face the revenge tax even when the invoice passes.
Artificial ETFs don’t should pay US WHT. They duck the tax by utilizing a monetary by-product to pay the index return – versus the normie method of really holding the shares that comprise the index.
This isn’t thought to be a tax dodge.
Artificial S&P 500 ETFs have been working since 2010. They’ve accrued billions in property beneath administration. They’re not within the cross-hairs of the IRS.
iShares, Xtrackers, and Amundi have all launched new artificial S&P 500 ETFs in the previous few years as phrase unfold that their withholding tax benefit gave them the sting over bodily ETFs.
World and international artificial ETFs can be found, too.
Certain, the US authorities may stage the enjoying subject later.
However for now that is an apparent get-out.
Are US Treasuries affected?
In a phrase, “No.” In three phrases, “No, for now.”
The Senate invoice clarified that even the Home formulation doesn’t intend to go after foreigners who’re serving to to fund the US deficit by proudly owning US fastened revenue.
So we are able to relaxation simple on that.
Even when some maniac flips out and adjustments their thoughts then the plain treatment can be to overlook Treasuries and maintain gilts as an alternative.
Negotiation software
(Ooh, I’m happy with that one. Simply once I thought I used to be all out of nicknames for Trump!)
Part 899 is meant as a software for negotiation. It might stop to use within the tax yr after a rustic drops no matter tax displeases the US Treasury Secretary.
From that perspective, the phased 5% hikes are a helpful means of turning the tax thumb screws: “Don’t make me do that.”
In fact, the UK or the EU could not cave. (Effectively, we most likely will. However they might not.)
I’d must seek the advice of a tax lawyer to grasp what would occur if the UK quietly mothballed the offending taxes whereas Eire didn’t.
Irish-domiciled ETFs are sometimes structured as Irish companies and pay withholding tax on the fund stage, so UK domiciled funds may acquire a aggressive benefit in that situation.
There’s additionally a Part 899 exemption for ‘United States-owned’ overseas companies. This is applicable if greater than 50% of the entity’s vote or worth is held by US individuals.
May that imply we’d be protected against Part 899 by funds from US corporations like iShares, Vanguard, or State Road? Once more, I’m not a global tax lawyer on a MAGA retainer. (Although I want I used to be paid like one).
What’s extra, a cavalcade of monetary trade particular pursuits and lobbyists is seemingly working to water down the provisions as they stand.
Lastly, the One Huge Lovely Invoice Act may fail to cross into regulation. That does occur in Congress. So that is removed from a completed deal.
Lastly, lastly, we may membership collectively and ship Trump a brand new Statue of Liberty. However together with his face. Made out of gold. He’d like that.
Take it regular,
The Accumulator
P.S. ‘Part 891’ already exists in US regulation to punish foreigners adjudged to impose unfair taxes on US residents and pursuits. It’s by no means been invoked. Apparently Part 899 is believed extra more likely to be carried out (if it turns into regulation) as a result of it’s not as harsh.
P.P.S. Different Part 899 provisions may adversely influence the earnings of non-US corporations. However that doesn’t appear price stepping into but given all of the uncertainties. Additionally, the harm estimates appear small, and corporations may legally shape-shift their possession construction to keep away from the incoming.
