Tax implications of child savings account

This question could also go on the parenting board but I’m putting it here because I’m mostly concerned with tax and other reporting issues.

Our son holds US and UK passports, is six months old and family members are asking about opening savings accounts for him.

I’m American and my husband is British. We live in the UK.

I have to report my accounts through FBAR every year. If we open a UK account for our son, will I need to report his account (as one of mine)? Or will we need to file an FBAR for him if the balance goes above the threshold?

529 plans look like an attractive option for a savings plan but are there any drawbacks?

If his US-based grandparents opened a 529 in the states, would our son be subject to UK taxes on it if he remains UK based and decides to go to university in the UK?


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Your son may have both a US income tax and a US FBAR filing requirement once the relevant filing thresholds are met. You - separately - may have FBAR filing requirements. You'll want to read more about the kiddie tax and the changes in kiddie tax for 2022.

A 529 plan may be considered a foreign trust by HMRC,  it certainly has no special treatment in the UK.

We have normal savings accounts for our kids. As I’m the named parent on them, I file their accounts on the same FBAR as my other accounts.

Stay away from anything “stocks and shares”.

I have Premium Bonds accounts for my kids. I report them on my FBAR, since I have control over them, and file a separate FBAR for each kid, since they own them. That's not a significant barrier: 1 more account to include for me, and a very simple FBAR for them with only 1 account. Extra 5 minutes a year, maybe. And since Premium Bonds are not UK taxable, I only need to worry about the US. For UK taxable accounts, if there's more than £100 interest, you may need to pay tax on it (at the parent's rate), if you go over your Personal Savings Allowance: https://www.gov.uk/savings-for-children

If your son is only getting unearned income (interest from a savings account, capital gains or dividends if you go the investment route), you need to file a US tax return for him if he gets more than $1,150. You can also elect to report their income on your tax return, although this will typically result in higher US taxes (taxed at your rate, not their rate - with the kiddie tax though, your rate still applies to their unearned income over $2,300). However, you may not have any US tax liability anyway due to Foreign Tax Credits, Child Tax Credit, etc. - depends on your individual situation, hard to give general advice.

529 is a generally bad idea for UK residents:
1. May be a foreign trust for HMRC, adding significant complexity.
2. Definitely does not have any UK tax advantages, just a normal taxable account.
3. Very likely cannot invest in HMRC reporting funds (I've haven't come across a 529 that offers any reporting funds). Non-reporting funds have their capital gains taxed at income rates, not the much lower capital gains rates (and without benefit of the capital gains allowance).
4. The need for a 529 is much less in the UK. University fees are considerably lower than in the US, and the student loan regime takes the form of a progressive tax for 30 years, after which the loan is cancelled.

There might be a way around it with the US grandparents holding the 529, but need to be careful how the beneficiary is handled, if that adds any UK complications. That's beyond my expertise, but definitely something to get clarity on.

Brief note that investing for kids in any other account type brings in all the usual investing complications too - PFICs, KID/KIID, etc. There are ways to do it, with pros and cons for the different account types (your ISA, Junior ISA, taxable brokerage/GIA, SIPP), but definitely adds complexity. Happy to expand on that if there's interest.

Thank you for your replies! This is very helpful.

If there are any vehicles that we can use for his savings, it would be great to hear about them! I am hoping to avoid PFICs — they sound like a minefield.

Ideally, it would be nice if our son could access the money in his savings account around 17 or 18 years old.

Are there ISAs or Junior ISAs that won’t get us tangled up with PFICs?


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The first question is if you're saving (cash - with interest, guarantee no loss of principal) or investing (stocks & shares - higher long-term expected returns, but capital is at risk, will be more volatile).

If saving, the main options are:
1. Savings account: either in your name, or in the child's name. Some of the child savings accounts have pretty good interest rates. Interest will be US and UK taxable, but Personal Savings Allowance applies for the UK, US has some thresholds below which child interest doesn't have to be filed ($1,500 this year).

2. Premium bonds: prizes not interest, but with a decent holding and a long enough time period, statistically very similar. UK tax free, US taxable. You can hold up to £50k in your name, £50k for each child.

3. Cash ISA in your name: basically the same as a savings account, except UK tax free.

4. Junior cash ISA in the child's name: same as a cash ISA in your name, except that it becomes the property of the child when they turn 18. Your call if you expect your kid to be responsible enough to handle it. Key constraint is that you can't take any money out until they turn 18 (or become terminally ill or die - hopefully not).

5. US savings bonds (I or EE): if you can be bothered to deal with the archaic TreasuryDirect website, these are potentially interesting options. US and UK taxable, although you can decide whether to pay the tax every year or wait until maturity.

Investing Options

1. Junior S&S ISA in the child's name: you'd have to do individual stocks, unless you can find a way around the PFIC/KID catch-22 (although the KID part is in consultation to repeal, which would make it easy to invest in US ETFs to avoid the PFIC part - make your voice heard: https://www.gov.uk/government/consultations/priips-and-uk-retail-disclosure). Same as the cash junior ISA in that it becomes the child's property at 18, and you can't withdraw until then. US taxable and reporting on individual stocks is a bit of a pain (doable, just tedious).

2. Adult S&S ISA in your name: same PFIC/KID catch-22 as a junior S&S ISA and US taxable. Key advantage is that you can access the money any time, not only when they turn 18, and it's your money - you can gift it at 18 if you want to, but you could decide your kid isn't ready and wait.

3. Taxable brokerage account, probably in your name. Have to navigate the PFIC/KID catch-22, but if it's a US brokerage who doesn't know/doesn't care that you're a UK resident, you may be able to buy US index funds (you'd want them to be HMRC reporting: https://www.bogleheads.org/wiki/US_domiciled_ETFs_that_are_UK_HMRC_reporting_funds)

4. UK SIPP/pension: either your own pension/SIPP, and then you gift to the child later (if the timings line up), or you can open a child SIPP. This is a really long term investment, they can't access until age 58ish (likely to go up over time). But US and UK tax advantaged, with all the usual grey area caveats around a SIPP (foreign grantor trust, form 3520/3520A, etc.).

5. IRA: If your son had earned income, he could contribute to a Roth IRA. Probably not at 6 months old But could consider if/when he gets a job. IRS doesn't care exactly where the money comes from, so entirely fine for him to keep his money from the job and you to contribute to the IRA, up to the amount of earned income (or the annual max).

Frankly, none of the options are perfect, but depending on your priorities, your timeline and your appetite for managing individual stocks, there are options to consider.

Personally, I've got premium bonds in my kids' names. Everything else is in my name, and if/when the time comes, I'll gift to them. I don't expect to be anywhere near US gift tax lifetime limits, and for the UK I just need to not die within 6 years of the gift (other options are available, like annual limits, but that's the very simple one). Also gives me control - if I don't think they're ready for the money, they don't get it. Equally, if there's a good reason even before they turn 18, I can access the money, at least from the accounts without restrictions on my age.

This is an amazing post. Thank you so much for taking the time to write such a clear explanation of all this!