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How to keep Child Benefit and retire richer despite the High Income Child Benefit Charge

Updated by The Investor on July 3, 2025

The children of high earning parents stand to lose their benefits.

Perhaps the ~~only~~ best perk of having kids in the UK is that the state gives you free money. However since 2013, the icily-named High Income Child Benefit Charge (HICBC) has tapered payouts for households where either partner’s income is above a certain threshold.

This income threshold is currently £60,000 a year.

Above that level Child Benefit is tapered via the HICBC at a rate of:

1% of the Child Benefit is repaid for every £200 of income above £60,000

At £80,000 and above the benefit has been fully withdrawn. (And no further HICBC is due).

A two-child household where one partner’s income is over £80,000 will lose £2,251.60 of Child Benefit in the 2025/2026 tax year due to the HICBC.

That’s quite a chunk of change.

What counts as income?

Your ‘net adjusted income’ determines liability for the HICBC.

Net adjusted income means money from all sources, including savings interest and dividends (outside of SIPPS and ISAs) and income from rental properties – adjusted for certain allowances.

In short: anything you’d declare to the taxman.

Your pension and the High Income Child Benefit Charge

Are you a Monevator-reading parent whose Child Benefit is going the way of sex, sleep, and skinny jeans?

Let’s see how you can keep your free money and retire richer, too.

Sadly the strategy – putting more into a pension to reduce your income – does require some near-term sacrifice.

In the original version of this post – written the day after the HICBC was announced in 2012 – I claimed…

I’m pretty sure I could drive a lawnmower through the average £60,000-earner’s verdant budget, so I don’t think that should be an obstacle for most people who put their mind to it.

Besides, this strategy enables you to keep getting free money from the taxpayer – from the likes of me.

So if you’re still complaining, stop it and start saving instead.

…but I’m much less sanguine now.

Even middle-class families are struggling to budget in today’s low-growth, high-tax economy.

Positive changes since 2024

At least the High Income Charge Benefit Charge isn’t as onerous as it was.

Up until 2024 the income threshold was £50,000 and the benefit was tapered at 1% for every £100. Depending on how many kids you had, your effective marginal tax rate (EMTR) could be 71% or more.

However the higher £60,000 threshold and the taper rate being halved since 2024 has brought that highest EMTR down to 57% for a three-child household.

Still not great. But less ludicrous than before.

The High Income Child Benefit Charge

Parents are paid Child Benefit at two different rates:

£26.05 a week for the eldest or only child

£17.25 a week for every additional child

For instance, a two-child family receives:

(£26.05 + £17.25) x 52 = £2,251.60 a year

…provided neither household partner’s income is above £60,000 a year.

Above £60,000, the benefit is progressively withdrawn via the HICBC as I outlined earlier.

Note: many people think a combined household income of over £60,000 triggers the tapering.

This is incorrect. Only one of you needs to trigger the £60,000 tripwire.

If you earn £40,000 and your partner earns £30,000, say, then your Child Benefit remains unmolested.

That’s because neither of you has an income above the £60,000 threshold – despite your household bringing in £70,000 total.

How the HICBC claws back Child Benefit on incomes over £60,000

The maths is straightforward:

For every £200 of income over the £60,000 threshold, 1% of the benefit is withdrawn via the HICBC.

You can still receive Child Benefit. But you’ll pay some or all of it back via the Charge.

By £80,000, all your Child Benefit is tapered away.

The HICBC is collected via your annual self-assessment tax return. If you don’t submit one and your income makes you liable for the HICBC, you must register with HMRC to begin filing.

From August 2025 you’ll reportedly be able to pay the HICBC via PAYE. I’m sure there will be no delays, and that everything will run smoothly.

Note that income generated within an ISA doesn’t count towards the £60,000 threshold.

After years of frozen tax brackets and all the dividend and capital gain allowance cuts since 2012, I can’t believe many Monevator readers still have unsheltered assets that they could yet shield within an ISA.

But for the record, reducing your ‘net adjusted income’ if you claim Child Benefit is another reason to ISA-fy all you can.

Losing Child Benefit is like paying a higher marginal tax rate

Clawing back Child Benefit via the HICBC is effectively a higher marginal income tax rate on earnings between £60,000 and £80,000.

For a parent with an income between £60,000 to £80,000, their effective marginal income tax rate (EMTR) rounds to:

47% for one child
51% for two children
56% for three children

Your EMTR rises with more children because you are repaying more Child Benefit for every extra £1 you earn over the threshold, via that £200 taper.

Before any HICBC, you pay higher-rate tax of 40% on income between £60,000 to £80,000.

Your EMTR = 40% + (Annual Child Benefit/200)

For example, you have two children and so claim £2,251.60 in child benefit. You earn over £60,000.

EMTR = 40% + (2251.60/200) = 51%

Ouch!

Using a pension to reduce your income

To keep all the Child Benefit, both parents need to earn less than £60,000. This way your household is not liable for the High Income Child Benefit Charge.

But what if one or both of you is unfortunate enough to enjoy a higher income?

There are a few things you can do about it:

Split up with your higher-earning partner

Tell your boss you will work for free

Tell your husband, wife, or whoever, that they can quit their high-paying job in return for certain non-taxable favours

Make hefty pension contributions to reduce your taxable income

I’m guessing the final option will be the most palatable for Monevator readers. (Though as I haven’t met your spouse I can’t be sure.)

Topping-up your pension to reduce your income is the best way to keep all your Child Benefit. (That’s assuming you’re not a high high-earner, in which case it won’t work. Or if you’re certain you’ll die before you can access your pension (at age 55/57) and so be unable to spend it, in which case there’s no point.)

The method is simple:

Say you’re the sole earner in your house, and you make £65,000 a year.

Increasing your pension contributions by £5,000 a year will reduce your income to £60,000. You’ll therefore keep all your child benefit.

If yours is a two-income family and you both earn over £60,000, you’ll both need to make extra pension top-ups to take you both below the danger zone.

All this is perfectly legal. (Recall the difference between tax evasion and avoidance).

And doing so is probably worth it if you can – though not quite the slam dunk it was under the old system, with its even more punishing effective rates.

Today a higher-rate taxpayer with two kids who uses extra pension contributions to reduce his or her income enough to keep all their Child Benefit will effectively be paying just 49p for every £1 of top-up into their pension.

That’s doubling the invested money at a stroke – before even a whiff of any investment returns.

Do remember though that your pension income will eventually be subject to tax. But very probably at a lower rate than the EMTR implied by paying the High Income Child Benefit Charge.

Important: None of this is tailored advice for your circumstances and I’m not a tax adviser. Get professional advice if you need it.

Still earning too much to escape the charge?

Some people will earn too much for it to be practical to retain Child Benefit solely by increasing their pension payments.

I’m sorry for your loss.

My sympathy is limited the richer you are – as I said earlier, I don’t love paying for other people’s kids’ mini-pashminas and pony-riding classes.

But for the record, there may be other ways to further bring your income down.

You might be able to sacrifice some salary in return for certain company benefits, for example.

It might even be possible to tilt your remuneration towards very long-term share options or similar. Obviously you’ll need to do your homework, and probably take professional advice.

If you earn more than £60,000 because you have savings or investments generating income outside of an ISA or pension – and you’re more confident in your relationship than I ever would be – then you could transfer some of the income-generating assets to your lower-earning partner. (Make sure you don’t push their total income over the £60,000 threshold, obviously).

Does all this stick in the craw of some child-less readers?

Well yes. I appreciate Child Benefit wasn’t designed to boost the pensions of the middle classes. As I said, I’m just explaining what’s possible. I’m not passing moral judgement.

Also, I didn’t invent the Byzantine tax and welfare system. If I had it wouldn’t look like this. (Personal finance bloggers would get special tax reliefs. Nobody thinks of our struggles!)

Should you claim Child Benefit even if you’ll repay it via the charge?

Yes. There are associated National Insurance credits that mean it’s best to claim Child Benefit, even if you ultimately repay it or opt-out of actually receiving it.

Don’t try to illicitly avoid the High Income Child Benefit Charge

You’ll often come across people earning over the £60,000 threshold who’ll tell you they don’t pay the HICBC.

Not because they make extra pension payments to bring their income down. But simply because they don’t declare their status properly to HMRC.

This is tax avoidance. It’s illegal, which is all that really matters. But you’re also liable to get caught and fined.

Okay, it’s true the number of penalties collapsed in the final year of the Tory government. But I can’t see why our cash-strapped current administration would let people off the hook.

You probably don’t flirt with criminality elsewhere in your life. Why do it here?

Living a £60,000-a-year lifestyle

The elephant in the room is of course that you can’t spend your pension until you’re, well, a pensioner.

Even though you’ll be quids-in one day by boosting your pension pot – thanks to your generous fellow taxpayers – you’ll need to take home enough now to keep your little darlings alive enough to qualify for their Child Benefit. Not to mention any other spending you consider essential.

You’ve no choice but to take a scythe to your budget. Only you can work out what’s dispensable and what’s non-negotiable for you.

As for your little cost centres – perhaps they could get a paper-round?

Is the High Income Child Benefit Charge unfair?

I was more militant in 2012 when I first wrote this article. Here’s my younger self, with only very light edits:

I’m the first to agree the benefits system is bloated, and that we’d do better tackling income inequality through an overhaul of the tax system – as opposed to politicians bribing us with our own money through welfare payments, tax perks, and other kickbacks.

On the other hand, you’re my dear readers, and many of you stand to lose your child benefit next year […]

Now, we could debate the politics of welfare all day. (Let alone the ethics of having three children).

Supporters of universal child benefit argue that an income of £60,000 isn’t any great shakes, especially in the South East.

Buying a house with room for a kid or two is already a Herculean feat for anyone down here without a rich benefactor. (Say a parent, a lottery win, a bank bonus, or a mortally-challenged grandparent).

And do we really want a society where only the poor can afford to have kids?

On the other hand, London property prices are just as high for us childless singletons – yet we don’t get a handout from the public purse.

Moreover I see people wasting money all day long – especially middle-class parents.

Slightly more tongue-in-cheek… perhaps I need to secure my financial future even more than a parent does. Why? Because there will be no spare room in my daughter’s house in my wrinkly decrepitude.

So why should my taxes pay for someone’s £1,145 Bugaboo Fox 5 all-terrain stroller?

In our over-crowded world, I’m also sceptical that parents are bringing up future taxpayers on my behalf.

That’s the economics of a Ponzi scheme – and one ill-suited to a planet with limited resources.

Ah, the easy certainty of Angry Young-ish Man.

I update the Bugaboo link and price in that excerpt, incidentally. Apparently the hilariously bougie ‘Bugaboo Lambskin Footmuff’ has been discontinued.

Who knows how many were (effectively) bought with Child Benefit?1

Investing for the child’s benefit

In the years since 2012, it’s transpired that some savvy parents who receive but don’t need to spend Child Benefit – surely a dwindling number, given the cost of living crisis – often stash the payments into a Junior ISA.

I applaud that as the Monevator editor. But as a taxpayer I have ‘questions’.

Oh well, we all have our views on all this stuff.

Today’s more milder me just hopes the pension workaround will help those readers who need it.

Home economics by Kafka

If you’ve ever wondered why our tax system is so unfathomable, the High Income Child Benefit Charge provides a perfect case study.

A silly system was modified with an even sillier system, at great expense and hassle for everyone – including HMRC – and despite it producing ‘cliff edges’ of unfairness.

The jammiest couples who follow this pension top-up strategy are working parents earning, say, £61,000 each.

If they both do £1,000 in extra pension payments they’ll keep all their Child Benefit – and retire richer. This despite them still having a household income of £120,000 a year.

In contrast, consider a sole earner in London on £80,000 with a full-time child-rearing spouse.

This breadwinner can’t afford to reduce their income by £20,000. Mortgage and energy costs have skyrocketed. And nearly two-fifths of their income is now taxed at the higher-rate, thanks to frozen tax brackets.

Such a parent will lose all their Child Benefit. Even though their household lives on £40,000 less pre-tax than the previous couple.

If you wanted a policy to encourage both parents to work full-time, you could do worse. I doubt that was the idea.

Remember this the next time a politician talks about being ‘fair’.

Everyone is at it in 2025

Back in 2012, Monevator was one of the first non-accounting websites to talk about making pension contributions to lower your earnings below a certain threshold, to reduce your effective marginal tax rate.

Obviously the concept wasn’t new. But most middle-class people didn’t think about it.

How different from today.

Millions more now pay higher-rate tax, household budgets are bloated with inflationary pressures, and a sluggish economy means nearly everyone is watching their pennies.

Trying to find an edge in the tax system is no longer a hobby for financial nerds. It’s a necessity for everyone.

This article on the High Income Child Benefit Charge was updated in July 2025. Comments below may refer to the previous regime with a different income threshold and taper rate. Please check the comment date if unsure.

Probably none, but a boy can dream, or rather shake his fist/head… [↩]

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Our updated guide to help you find the best online broker

Updated by The Accumulator on July 1, 2025

Attention UK investors! Remember our massive broker comparison table? Well, we’ve rolled up our sleeves and updated it again to help you find the best online broker for you.

Cutting the lawn with nail scissors would have been less tedious. But it would not have produced a quick and easy overview of all the main execution-only investment services.

Investment platforms, stock brokers, call ’em what you will… we’ve stripped ’em down to their undies for you to eyeball over a cup of tea and your favourite tranquillisers.

What’s changed with this update?

Zero-fee platform Lightyear is in. It’s getting good reviews on Trustpilot.

Chip has made the cut too. Have a shufty if you want an app that smites analysis paralysis by offering you simply ‘the best of three’ funds.

Meanwhile table stalwarts X-O and Sharedeal Active are out. They’ve been hoovered up by Interactive Investor in its seemingly relentless quest for flat-fee broker dominance.

Who’s the best broker?

It’s impossible to say. There are too many subtle differences in the offers. The UK’s brokers occupy more niches than the mammal family. And while I know which one is best for me, I can’t know which one is right for you.

What we have done is laser focus the comparison onto the most important factor in play: cost.

An execution-only broker is not on this Earth to hold anyone’s hand.

Yes, we want their websites to work. We’d prefer them to not screw us over, go bust, or send us to the seventh circle of call centre hell. These things we take for granted.

So customer service metrics are not included in this table. It’s purely a bare-knuckle contest of brute cost for services rendered.

On that basis we’ve updated our ‘Good for’ column as below.

^{Disclosure: Links to platforms may be affiliate links, where we may earn a small commission. It doesn’t affect the price you pay nor how we judge the brokers. This article and the comparison table are not personal financial advice. Your capital is at risk when you invest.}

Beginners

InvestEngine for ETFs. (Alternatively: Lightyear and Trading 212)
Prosper for funds (also has a sprinkle of ETFs)

These are zero-fee brokers. It’s always worth looking at a zero-fee broker’s ‘How we make money’ page because – rest assured – they will be earning a buck, one way or another.

Just search that topic on their websites.

If zero-fee brokers make you feel queasy then stay under the FSCS £85,000 investor compensation limit or use a broker that charges fees directly. You’ll find some very competitive offers in our table.

Beginners who prefer direct fees

Dodl for funds. (Alternatively: Trinity Bridge, Fidelity, plus Lloyds for SIPPs)

Established investors with portfolios worth £85,000+ / prefer to pay direct fees

Freetrade for ETFs. (Alternatively: Halifax/iWeb. SIPPs: Interactive Investor, Fidelity, AJ Bell)
Lloyds for funds. (Alternatively: Vanguard. iWeb if you hardly ever trade. SIPPs: Interactive Investor. N.B. Lloyds, iWeb and Halifax are the same firm for FSCS protection purposes.)

The best choice for you depends on how often you trade, the value of your accounts, plus your personal priorities around customer service, family accounts, flexible ISAs, multi-currency accounts and so on.

Our ‘Good for’ choices are purely cost-based. We assume 12 buy and four sell trades per year.

Using the full table

We divide the major UK brokers into four camps:

Flat-fee brokers – these charge one price for platform services, regardless of the size of your assets. In other words, they might charge you £100 per year, whether your portfolio is worth £1,000 or £1 million. Generally, if you’ve got a large portfolio then you definitely want to look here. Bear in mind that fixed fee doesn’t mean you won’t also be tapped up for dealing monies and a laundry list of other charges.

Percentage-fee brokers – this is where the wealthy need to be careful. These guys charge a percentage of your assets, say 0.3% per year. For a portfolio of £1,000 this would amount to a fee of £3 – but on £1 million you’d be paying £3,000. Small investors should generally use percentage-fee brokers. However even surprisingly moderate rollers are better off with fixed fees. Many percentage-fee brokers offer fee caps and tiered charges to limit the damage.

Zero-fee brokers – these fresh upstarts apparently don’t charge you at all. Their marketing departments have it easy, simply pointing to £0 account charges and trading fees costing diddly squat. So why don’t these firms go bankrupt? Because they make up the difference using other methods. Revenue streams can include higher spreads, no interest on cash, and cross-selling more profitable services.

Trading platforms – brokerages that suit active investors who want to deal mostly in shares and more exotic securities besides. Think of noob-unfriendly sites like Interactive Brokers, Degiro, and friends.

Our table looks complex. But choosing the right broker needn’t be any more painful than checking it offers the investments you want and running a few numbers on your portfolio.

Help us find the best online broker for all of you

Our table’s ongoing vitality relies on crowd-sourcing.

We review the whole thing roughly every three months. But it can be kept permanently up-to-date if you contact us or leave a comment every time you find an inaccuracy, fresh information, or a platform you think should be added.

Thanks to your efforts as much as ours, our broker comparison table has become an invaluable resource for UK investors looking to find the best online broker.

Take it steady,

The Accumulator

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Weekend reading: Cheaper bond funds, for those who want them

by The Investor on June 28, 2025

What caught my eye this week.

Vanguard cut the fees on seven of its bond ETFs this week. For the full list see the table below.

I got a heads-up on this fee-flailing from a thoughtful Monevator reader. They speculated that perhaps the price cuts were needed to gee up enthusiasm for bonds after the big crash of 2022.

Given the scorn that some Monevator commenters heap upon bonds nowadays, I can see where this thinking comes from. But I don’t believe it’s right.

In fact money has been pouring into bonds recently.

UK bond funds recorded net inflows of £57bn in 2024, after two years of outflows.

Also many cash-rich private investors have also been buying short-dated gilts for the tax benefits. We explained why and how in a member post in November.

So why the disconnect?

Once bitten by bonds

I believe that many thoughtful and engaged passive investors were a bit blindsided by the bond rout as interest rates soared a few years ago.

These investors had commendably educated themselves about the benefits of a diversified portfolio.

But they’d taken away an over-simplified mantra that ‘bonds are safe’, and skipped the small print.

In fact, bonds at near-zero yields were primed for likely poor returns. The unpredictable thing was the bad returns came all at once. Instead of a slow bleed for a decade, balanced portfolios lost an artery.

Thus investors who’d put their money into, say, a 60/40 portfolio believing they were doing the responsible thing were blindsided when owning bonds made things even worse in 2022. Not such much a buffer as melting butter.

It might have gone differently. There are timelines were equities crashed and instead of inflation we got deflation. For instance: if governments and central banks hadn’t flooded the system with liquidity to fight the pandemic in 2020. In that case, think 1930s lost decade-style returns for equities.

True, you probably still wouldn’t have seen good returns from bonds – that’s maths – but annualised small losses from bonds may have buffered huge declines in the stock market.

Bonds are back

Today’s expected returns for bonds are much healthier anyway.

The yield-to-maturity on a ten-year gilt is 4.5%. Lend the government money for three decades and a 30-year gilt will pay you 5.2% annualised for doing so.

Of course you have to account for inflation, but in theory that should be around 2%. If you’re not convinced that will hold then an index-linked gilt of the same duration will deliver a 2% real return, if held to maturity.

Lower fees please

Vanguard’s cuts are small in that they’re just a few basis points – but chunky reductions with respect to these already tiny fees:

Source: Vanguard Investor

What’s ironic is that these fee cuts have come when the expected returns from bonds are much higher.

Even ten basis points of fees made barely-there returns even worse when fixed income was brain-numbingly expensive back in 2020.

But with expected annual returns from UK bonds in the 4-5.5% range, smaller fees are gilding the lily.

Finally – just to reassure the strangely persistent Vanguard conspiracy theorists out there – no Vanguard didn’t pay for this post. It didn’t even alert us about the price cuts.

And yes other good ETF providers are available.

I just thought the move was worth highlighting given Vanguard’s size and all the ongoing confusion about the asset class.

Also, it’s a great demonstration that even very cheap funds can get cheaper.

Have a great weekend.

p.s. If you’ve ever been a fan of Formula One racing then you need to see F1: The Movie on a big screen. It’s Top Gun: Maverick on wheels and a nostalgic blast from the past!

[continue reading…]

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Trump’s ‘revenge tax’ and what it means for your US investments

by The Accumulator on June 24, 2025

Oh god, what now? What now is Section 899 of the One Big Beautiful Bill – Trump’s monster-truck ‘tax and spend’ act currently bouncing around the halls of Congress.

Section 899 has been dubbed a ‘revenge tax’ because it targets individuals, corporations, and governments of foreign countries who are deemed to be hitting US entities with ‘unfair foreign taxes’.

Foreign countries like China, North Korea, and that island where all the tariff-loving penguins live, right?

Not necessarily. Quite possibly foreign lands like the UK, the EU, Australia and Japan. Plus anyone else who perhaps had Big Tech in mind when they drew up undertaxed profits rules (UTPRs), digital services taxes (DSTs), or diverted profits taxes (DPTs).

How does Section 899 affect ME?

Yes, I hear you.

The most likely impact at the time of writing is that you, an individual resident in a major US trading partner and ally, quietly building up your nest egg chock full of American assets, could be on the hook to pay a higher rate of US withholding tax (WHT).

There could be other spillover effects too but I’m going to concentrate on the most immediate – and talk about how you could mitigate the worst, should it happen.

Currently, withholding tax is due on income paid by US assets to overseas owners.

Many Monevator readers already pay withholding taxes on US equities and bonds1, although that’s not always apparent.

For example, a non-US domiciled fund will pay withholding tax on your US income before distributing the balance as dividends or interest (or reinvesting the cash back into the fund.)

That’s so much background. The nub of the problem is that anyone paying US withholding tax – whether directly or indirectly – could be in the firing line.

WHT? WTF more like

The main rate of US withholding tax is 30%. It’s levied on income, not capital gains.

Right now, you’re typically in for 15% WHT on US securities held via an Irish-domiciled fund or ETF. You get 50%-off the main rate due to a Double Taxation Agreement (DTA) that exists between the United States and Ireland.2

UK domiciled funds also qualify for the 15% withholding tax rate. Mighty Blighty has a deal with Uncle Sam, too.

Fund managers have to actively claim the rebate, which I imagine is much like wangling a gift voucher out of your mobile phone provider: “Only valid when accompanied by an original receipt, recent dental X-ray, and proof of being heir to the throne…”

It’s commonly accepted that Irish ETFs only pay 15% WHT but it may be worth checking the specifics if you invest in another type of fund.3

Got a portfolio of individual US stocks? Then fill in a W-8BEN form to reduce your WHT rate to 15%.

Ideally hold your portfolio of Made In America assets in a pension or SIPP. Choose the right platform and your SIPP scoops a 0% rate – no paperwork required.

What are the withholding tax hikes proposed under Section 899?

Section 899 goes from bad to worse depending on which version of the legislation we’re talking about.

Currently, one version has been passed by the US House of Representatives and another is due to be voted on by the Senate.

It’s worth saying that the entire bill is still subject to amendment as it journeys through Congress. Section 899 is not yet set in stone.

But here’s where we’re at:

Section 899 WHT	House version	Senate version
WHT rate after phase-in	50%	15% to 45% depending on existing treaty rates
Phased rise	5% per year	5% per year
DTA discount effect	All rates rise 5% per year until the 50% cap is reached.	DTAs cushion the blow e.g. Existing 0% rate rises to max 15%. 30% rate rises to max 45%.

A quick example may help you better understand these proposals.

Let’s say you (or your fund) currently pays a 15% WHT rate on US dividends. In this case the House plan will demand 50% of your income in year seven after Section 899 is invoked.

That’s the ceiling rate. You’ll pay 50% from there on in (as will everyone else once the 5% per year phased hikes have done their work.)

The Senate version still screws you, but it’s gentler, possibly more classy. The lovely senators jack the rate three times and respect your DTAs.

F’r instance, a 15% payer caps out at 30% after three years.

It’s still less than ideal.

How bad?

You can estimate your loss of return by multiplying your investment’s dividend yield by your WHT percentage.

The S&P 500’s dividend yield is 1.3% according to the current S&P Dow Jones factsheet. So your loss to withholding tax is approximately:

WHT rate	0%	15%	30%	45%	50%
Loss of return	0%	-0.2%	-0.39%	-0.59	-0.65%

Thus if you pay 15% WHT now, your dividend return is reduced from around 1.3% to 1.1%

The House’s 50% revenge rate would cut your dividends in half. You’d be losing 0.65% based on the current yield.

That will add up over time.

Moreover, the S&P 500’s yield is near its historic low. An average yield of 1.5% to 2% is more typical.

The effect is worse still if you’re invested in higher-yielding stocks, such as a US dividend growth strategy.

Run away?

It’s important we don’t lose our heads.

Nobody wants to lose halve their dividend return, but here’s what it would have looked like (red line) compared to the returns you actually made investing in the S&P 500 this past decade while paying 15% WHT (blue line).

Nominal USD annual total return data from Aswath Damodaran. Fund costs not included. June 2025.

In the worst-case 50% WHT scenario you’d have booked a 12.1% annualised return instead of a 12.7% annualised return over ten years.4

As I say: not great. It does hurt!

But you would still have been better off investing in US equities versus the World ex-US over this period, even if ultimately exposed to the hardcore version of Section 899.

Tax tail meet investment dog

Of course we can argue that the S&P 500 would have been less attractive to global investors, or that US holdings will henceforth come with greater political risk attached…

I’d sign up to all of that.

But pre-emptively moving now to down-weight the US in our portfolios solely on the basis of Section 899 looks premature to me.

For a start the US is likely to remain one of the most dynamic markets in the world and trying to guess what will happen next is a fools’ errand. Perhaps now more than ever.

Secondly, there’s a great way to get around Section 899 – SHOULD IT HAPPEN. (Sorry about the all-caps, just channelling my inner Trump there.)

The work around

There are #reasons to think you won’t have to face the revenge tax even if the bill passes.

Synthetic ETFs don’t have to pay US WHT. They duck the tax by using a financial derivative to pay the index return – as opposed to the normie approach of actually holding the shares that comprise the index.

This isn’t regarded as a tax dodge.

Synthetic S&P 500 ETFs have been operating since 2010. They’ve accumulated billions in assets under management. They’re not in the cross-hairs of the IRS.

iShares, Xtrackers, and Amundi have all launched new synthetic S&P 500 ETFs in the last few years as word spread that their withholding tax advantage gave them the edge over physical ETFs.

World and global synthetic ETFs are available, too.

Sure, the US government could level the playing field later.

But for now this is an obvious get-out.

Are US Treasuries affected?

In a word, “No.” In three words, “No, for now.”

The Senate bill clarified that even the House formulation doesn’t intend to go after foreigners who are helping to fund the US deficit by owning US fixed income.

So we can rest easy on that.

Even if some maniac flips out and changes their mind then the obvious remedy would be to forget Treasuries and hold gilts instead.

Negotiation tool

(Ooh, I’m pleased with that one. Just when I thought I was all out of nicknames for Trump!)

Section 899 is intended as a tool for negotiation. It would cease to apply in the tax year after a country drops whatever tax displeases the US Treasury Secretary.

From that perspective, the phased 5% hikes are a useful way of turning the tax thumb screws: “Don’t make me do this.”

Of course, the UK or the EU may not cave. (Well, we probably will. But they may not.)

I’d need to consult a tax lawyer to understand what would happen if the UK quietly mothballed the offending taxes while Ireland didn’t.

Irish-domiciled ETFs are typically structured as Irish corporations and pay withholding tax at the fund level, so UK domiciled funds could gain a competitive advantage in that scenario.

There’s also a Section 899 exemption for ‘United States-owned’ foreign corporations. This applies if more than 50% of the entity’s vote or value is held by US persons.

Could that mean we’d be protected from Section 899 by funds from US firms like iShares, Vanguard, or State Street? Again, I’m not an international tax lawyer on a MAGA retainer. (Though I wish I was paid like one).

What’s more, a cavalcade of financial industry special interests and lobbyists is apparently working to water down the provisions as they stand.5

Finally, the One Big Beautiful Bill Act could fail to pass into law. That does happen in Congress. So this is far from a done deal.

Finally, finally, we could club together and send Trump a new Statue of Liberty. But with his face. Made out of gold. He’d like that.

Take it steady,

The Accumulator

P.S. ‘Section 891’ already exists in US law to punish foreigners adjudged to impose unfair taxes on US citizens and interests. It’s never been invoked. Apparently Section 899 is thought more likely to be implemented (if it becomes law) because it’s not as harsh.

P.P.S. Other Section 899 provisions could adversely impact the profits of non-US companies. But that doesn’t seem worth getting into yet given all the uncertainties. Also, the damage estimates seem small, and companies could legally shape-shift their ownership structure to avoid the incoming.

Lots of other countries levy similar withholding taxes but we’re not concerned with that here. [↩]
Remember it’s the fund that pays. While you don’t incur withholding tax on dividends paid directly to you by Irish-based funds and ETFs, that’s because they’ve already settled accounts with Uncle Sam before you get a sniff. [↩]
Contact the fund manager or look in the annual report. Find the section that details the amount of overseas dividends received and tax paid. Divide the tax paid by the dividend amount. Multiply by 100 to discover the effective withholding tax rate. Note, this will only give you the effective US withholding tax rate if the fund invests 100% in US assets. [↩]
Nominal USD returns. [↩]
Hard to believe I’m cheering on this crew. [↩]

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