Oh god, what now? What now could be Part 899 of the One Massive Lovely Invoice – Trump’s monster-truck ‘tax and spend’ act presently bouncing across the halls of Congress.
Part 899 has been dubbed a ‘revenge tax’ as a result of it targets people, firms, 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 presumably overseas lands just like the UK, the EU, Australia and Japan. Plus anybody else who maybe had Massive Tech in thoughts once they drew up undertaxed earnings guidelines (UTPRs), digital providers taxes (DSTs), or diverted earnings taxes (DPTs).
How does Part 899 have an effect on ME?
Sure, I hear you.
The almost certainly affect on the time of writing is that you simply, a person resident in a significant US buying and selling accomplice and ally, quietly increase your nest egg chock stuffed with American belongings, might be on the hook to pay a larger fee of US withholding tax (WHT).
There might be different spillover results too however I’m going to focus on essentially the most instant – and speak about how you can mitigate the worst, ought to it occur.
At present, withholding tax is due on earnings paid by US belongings to abroad house owners.
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 earnings earlier than distributing the steadiness 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 instantly or not directly – might be within the firing line.
WHT? WTF extra like
The primary fee of US withholding tax is 30%. It’s levied on earnings, not capital positive aspects.
Proper now, you’re sometimes in for 15% WHT on US securities held by way of an Irish-domiciled fund or ETF. You get 50%-off the primary fee as a consequence of a Double Taxation Settlement (DTA) that exists between the USA and Eire.
UK domiciled funds additionally qualify for the 15% withholding tax fee. Mighty Blighty has a take care of Uncle Sam, too.
Fund managers must 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, latest 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 for those who spend money on one other sort of fund.
Acquired a portfolio of particular person US shares? Then fill in a W-8BEN type to scale back your WHT fee to fifteen%.
Ideally maintain your portfolio of Made In America belongings in a pension or SIPP. Select the precise platform and your SIPP scoops a 0% fee – no paperwork required.
What are the withholding tax hikes proposed underneath Part 899?
Part 899 goes from dangerous to worse relying on which model of the laws we’re speaking about.
At present, 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 your entire invoice continues to be topic to modification because it journeys by Congress. Part 899 is just not but set in stone.
However right here’s the place we’re at:
| Part 899 WHT | Home model | Senate model |
| WHT fee after phase-in | 50% | 15% to 45% relying on current treaty charges |
| Phased rise | 5% per 12 months | 5% per 12 months |
| DTA low cost impact | All charges rise 5% per 12 months till the 50% cap is reached. | DTAs cushion the blow e.g. Present 0% fee rises to max 15%. 30% fee rises to max 45%. |
A fast instance might assist you higher perceive these proposals.
Let’s say you (or your fund) presently pays a 15% WHT fee on US dividends. On this case the Home plan will demand 50% of your earnings in 12 months seven after Part 899 is invoked.
That’s the ceiling fee. You’ll pay 50% from there on in (as will everybody else as soon as the 5% per 12 months phased hikes have completed their work.)
The Senate model nonetheless screws you, but it surely’s gentler, presumably extra stylish. The stunning 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 supreme.
How dangerous?
You’ll be able to estimate your lack of return by multiplying your funding’s dividend yield by your WHT proportion.
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 fee | 0% | 15% | 30% | 45% | 50% |
| Lack of return | 0% | -0.2% | -0.39% | -0.59 | -0.65% |
Thus for those who pay 15% WHT now, your dividend return is lowered from round 1.3% to 1.1%
The Home’s 50% revenge fee would reduce your dividends in half. You’d be dropping 0.65% primarily based on the present yield.
That can add up over time.
Furthermore, the S&P 500’s yield is close to its historic low. A median yield of 1.5% to 2% is extra typical.
The impact is worse nonetheless for those who’re invested in higher-yielding shares, equivalent to a US dividend progress technique.
Run away?
It’s vital we don’t lose our heads.
No one needs to lose halve their dividend return, however right here’s what it will have regarded like (crimson line) in comparison with the returns you truly made investing within the S&P 500 this previous decade whereas paying 15% WHT (blue line).
Nominal USD annual complete return information from Aswath Damodaran. Fund prices not included. June 2025.
Within the worst-case 50% WHT state of affairs 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 in the end 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 engaging to international traders, or that US holdings will henceforth include higher political threat connected…
I’d signal as much as all of that.
However pre-emptively shifting now to down-weight the US in our portfolios solely on the idea of Part 899 appears untimely to me.
For a begin the US is prone to stay some of the dynamic markets on this 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 in regards to the all-caps, simply channelling my interior Trump there.)
The work round
There are #causes to suppose you received’t must face the revenge tax even when the invoice passes.
Artificial ETFs don’t must pay US WHT. They duck the tax by utilizing a monetary spinoff to pay the index return – versus the normie method of truly 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 collected billions in belongings underneath 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.
Positive, 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 earnings.
So we are able to relaxation straightforward on that.
Even when some maniac flips out and modifications their thoughts then the apparent treatment can be to neglect Treasuries and maintain gilts as an alternative.
Negotiation software
(Ooh, I’m happy with that one. Simply after I thought I used to be all out of nicknames for Trump!)
Part 899 is meant as a software for negotiation. It will stop to use within the tax 12 months after a rustic drops no matter tax displeases the US Treasury Secretary.
From that perspective, the phased 5% hikes are a helpful method of turning the tax thumb screws: “Don’t make me do that.”
In fact, the UK or the EU might not cave. (Properly, we most likely will. However they could not.)
I’d have to seek the advice of a tax lawyer to know what would occur if the UK quietly mothballed the offending taxes whereas Eire didn’t.
Irish-domiciled ETFs are sometimes structured as Irish firms and pay withholding tax on the fund stage, so UK domiciled funds may acquire a aggressive benefit in that state of affairs.
There’s additionally a Part 899 exemption for ‘United States-owned’ overseas firms. This is applicable if greater than 50% of the entity’s vote or worth is held by US individuals.
Might that imply we’d be protected against Part 899 by funds from US corporations like iShares, Vanguard, or State Avenue? 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 business particular pursuits and lobbyists is outwardly working to water down the provisions as they stand.
Lastly, the One Massive Lovely Invoice Act may fail to move into legislation. 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 along with his face. Made out of gold. He’d like that.
Take it regular,
The Accumulator
P.S. ‘Part 891’ already exists in US legislation to punish foreigners adjudged to impose unfair taxes on US residents and pursuits. It’s by no means been invoked. Apparently Part 899 is assumed extra prone to be carried out (if it turns into legislation) as a result of it’s not as harsh.
P.P.S. Different Part 899 provisions may adversely affect the earnings of non-US firms. However that doesn’t appear price entering into but given all of the uncertainties. Additionally, the injury estimates appear small, and corporations may legally shape-shift their possession construction to keep away from the incoming.
