<<I am about to take the plunge from offshore mutuals into the Dow Jones,
but am concerned about taxation. I hope my questions aren't that foolish!>>

Ok...let's see what we might be able to help you with.

<<question 1;

What tax, if any, would a Brit living in Japan hoping to buy and sell
American shares be liable to? Is capital gains tax deducted at source
automatically?>>

Generally speaking, no. Since you are neither a US citizen nor a US resident, you'll generally only be liable for US taxes on interest and dividends paid to you by the US companies. Generally speaking, your capital gains would not be subject to US taxes.

BUT...all of that being said, the tax treaty between the US and England is complex, so you might find that your situation could be a bit different. In order to understand the differences, I would certainly suggest that you drift on over to the IRS web site and read IRS Publications 519 and 901 dealing with tax issues of non-resident aliens and the various US tax treaties.

<<question 2;

Leading on from question 1, if captial gains tax is deductable from any
profit of sales, is it advisable to chop and change ones portfolio, such
as the foolish four every year, for example?>>

That would depend upon the tax rate that you would be assessed (if any) and the returns of other investments that might be available to you.

Again, check out the IRS Publications for MUCH MORE information on this issue.

TMF Taxes
Roy