Hiya - I'm a US born Dual citizen, resident in the UK for 12 years.
I have two dual citizen children, and am thinking about setting up US 529 accounts for them to take advantage of tax-advantageous status.
I see no reason why the US tax advantages of a 529 plan would be recognized by HMRC. My best guess is that if you could open one (probably very difficult as a UK resident) you'd pay UK tax on any dividends or gains and you'd have to be careful to avoid non-reporting funds.
Is my only option to have US Resident Grandparent or Aunt set-up the account?
That's an option, but there is an easier solution. What about a Junior ISA or just a regular investment account for your children. The UK has generous tax free capital gain and dividend allowances and it's rare for children to pay tax on their accounts.
And if this is the case, I'm assuming HMRC wouldn't be interested in this account at all.
Yes that's right....no UK tax issues for a 529 plan owned by a US resident while the account is growing.
What happens in 15 years when UK-resident children start withdrawing this money? Do they have to pay UK tax on it, thus reducing the tax-advantageous reason for setting up in the first place?
thanks!!
I would get a non-UK tax resident custodian to make the withdrawal and give the money to your children. I don't think there is any UK tax issue here. As far as HMRC is concerned money from the 529 is a gift and the UK does not charge gift tax to the person that gets the money. The US custodian also has no US tax issue as long as the money is used to pay for an approved college....most UK colleges are approved, but double check that when the time comes.
If a US resident wants to fund a 529 plan for your children that's great. If you want to save for their college use a UK account like a junior ISA or open an investmenst account in their name.
