UK CTFs

A UK "Child Trust Fund (CTF)" is a long-term savings/investment account for children in the UK. The UK Government introduced the Child Trust Fund with the aim of ensuring every child has savings at the age of 18. Eligible children received an initial subscription from the government in the form of a voucher for at least £250. The accounts are exempt from UK taxes and cannot be withdrawn until they are 18.
While they are called Child Trust Funds, apparently the US IRS deems them similar to an Educational IRA or Coverdale Savings Accounts.

1. Does one need to need to file FinCens (FBars) on behalf of kids if they hold these accounts. It does NOT look like FATCA (which I think is 8938) needs to be filed though. Anyone agree or disagree?
2. Does one need to add CTFs to individual FinCen (FBAR) if they are "registered contact". Funds have always been invested in Mutual Funds/publicly traded companies.
3. Do these accounts need to be reported on Forms 3520 and 3520a?

1. After doing extensive research online, it looks like I will need to file FinCens (FBars) on behalf of both my daughters. It does NOT look like FATCA (which I think is 8938) needs to be filed though. Anyone agree or disagree?

I agree

2. Do I also need to add the accounts on to my own FinCen (FBAR)? I am registered contact but certainly have no claim to money in accounts it is solely my daughters. I believe as registered contact I can choose what mutual funds money can be invested in but thats it. I've never made any changes though. Funds have always been invested in Mutual Funds/publicly traded companies (actually lost money on them in 2015!)

FinCEN is necessary if you are over the thresholds and you will declare that you have signature authority over your children's accounts.

3. One last question, do these accounts need to be reported on Forms 3520 and 3520a?

I am so frustrated as I spent so much money on US accountants and lawyers 2 years ago to become completely US tax compliant (after not understanding I needed to file FBARS on joint account I had with hubby that exceeded $10K and then not understanding that all bank accounts need to be reported even if not over $10K). I even reported the parent/teacher charity account I happened to have signatory authority on when I was head of parents social organisation! I have bent over backwards to be compliant and this has caused so much stress and worry when I realised I hadn't done it right in the first place, now I'm worried again!!

Really seriously thinking about renouncing citizenship as have no plans to ever live in US again and will most likely recommend to daughters to renounce when they turn 18.   Any advice or sympathy would be appreciated. My UK friends just don't have any idea what its like

I believe there is a filing threshold of around $1000 of investment income before a child needs to file a US tax return. Then you can choose to wither do a separate 1040 or include the dependent child's income on your own return. The UK Children's trust fund will get no special US tax treatment so foreign trust forms 3250 are probably required along with PFIC forms if you are invested in foreign mutual funds.

Saving and investing for US children living outside the US is the same minefield as it is for adults.

Both the parent and each child can have FBAR filing requirements for the same accounts.  It sounds as if the children may not meet the FBAR filing threshold - but you'd want to check.

The income might go on a parent's or a kiddie tax return; but not if it is PFIC income or a gain.  If the CTFs own PFICs, the children may have mandatory PFIC reporting.

It is not clear why you would have needed lawyers to advise on compliance issues; but it is quite odd indeed that an accountant or lawyer armed with the dates of birth of the children would have failed to ask you about the CTFs as Gordon Brown made these (briefly) mandatory for all children born between specific dates.

If the CTFs are currently invested in PFICs you'd want to move the money into a junior ISA and into US friendly investments.

This is truly a mess; but it may not be your fault. It is really, really odd that the lawyer and accountant you used failed to advise you on PFIC rules. It appears that they were each arguably negligent.  Both you AND the children need to file FBARs. You should consider filing amended FBARs for you back to 2009 - the children should file delinquent FBARs for as many years back as they met the filing threshold. (FinCEN stands for the Financial Crimes Enforcement Network; the FinCEN 114 - the FBAR form is filed with FinCEN each year.)

The investments selected will at - least from the calendar year 2013 onwards - require ANNUAL reporting on Forms 8621 by each child, as a part of each of their MANDATORY US filing obligations. The obligation is mandatory because they are acquiring PFICs each year. At some future stage any gains would attract tax at PFIC rates of up to 100% of any gain.

You may want to start by reading IRS instructions for Form 8621 to establish some of the omitted reporting obligations: https://www.irs.gov/pub/irs-pdf/i8621.pdf . You may also want to check with Childrens' Mutual that they accept US person investors at all.

Many thanks for taking the time to respond.

So it sounds like the CTFS need to be included on my Fin Cens and I will need to submit FinCens on behalf of my daughters.

I'm confused about the need to report "income" from the the Child Trust Fund. What income? I pay in £600/year per child. All funds in account are invested by the Children's Mutual in the Aberdeen Foundation Growth Fund-100% invested in UK equities  (FOR EX. ROYAL DUTCH SHELL, HSBC HOLDINGS-Are these PFICs?)

 The value of the account goes up and down depending on stock shares. No money can be withdrawn until children are 18.  Children are not receiving income? If they choose to withdraw money they can do it at age 18. It is tax-free in UK.

How does this count as reportable investment income?

Many thanks

Unfortunately there are strict rules around foreign "mutual funds" owned by US citizens. An 8621 PFIC form needs to be filed and even if you didn't sell any shares in the funds you need to calculate the market value and pay tax on the dividends and gains to the IRS at ordinary income tax rates. I would advise that you move the money to a long term savings account that only pays interest and then you will avoid PFIC issues....if the money was in individual stocks that would also avoid PFIC, but the accounting would be more complicated than with a simple interest account.

Two quick comments on your last post.

1) The default starting position for a US citizen abroad should be that all accounts are taxable by the IRS. Local tax exemptions are usually not recognized by the IRS. UK pensions are a particular exception to this generalization, but ISA, tax exempt interest accounts, tax free UK benefits etc are not.

2) Too many times people put money into investments without understanding what they are buying. They put more consideration into buying a pair of jeans. This frightens me. You must understand what you are buying, it's structure and it's risk to invest sensibly. Sorry for the small rant, but pri-active research can help avoid trouble.


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The FinCEN reporting threshold is $10k on the aggregate of all foreign accounts. I don't think there is a threshold on PFIC filing, but your children might not have to file taxes if their investment gains are low enough.


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The FinCEN reporting threshold is $10k on the aggregate of all foreign accounts. I don't think there is a threshold on PFIC filing, but your children might not have to file taxes if their investment gains are low enough.


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What about the following threshold?

Regs. §1.1298-1T(c)(2)(i):

A shareholder is not required under section 1298(f) and these regulations to file Form 8621 (or a successor form) with respect to a section 1291 fund (as defined in § 1.1291-1T(b)(2)(v)) if —

(A) On the last day of the shareholder’s taxable year,

(1) The value of all PFIC stock owned directly or indirectly under section 1298(a) and § 1.1291-1T(b)(8 ) by the shareholder is $25,000 or less[.]

There is more information here:

http://hodgen.com/what-is-the-annual-reporting-requirement-for-pfics/

What about the following threshold?

Regs. §1.1298-1T(c)(2)(i):

A shareholder is not required under section 1298(f) and these regulations to file Form 8621 (or a successor form) with respect to a section 1291 fund (as defined in § 1.1291-1T(b)(2)(v)) if —

(A) On the last day of the shareholder’s taxable year,

(1) The value of all PFIC stock owned directly or indirectly under section 1298(a) and § 1.1291-1T(b)( by the shareholder is $25,000 or less[.]

There is more information here:

http://hodgen.com/what-is-the-annual-reporting-requirement-for-pfics/

Good to know, and probably a relief to many. The child might not have to file taxes at all if their investment gains are below something like $1000 I think. One question though, if you have gains in a PFIC, but fall below the threshold I assume you still have to pay tax on them as an excess distribution.....ie at your marginal income tax rate.

The $25,000 deminimis PFIC filing exemption only applies if there are no reportable PFIC events and no election is made. In the OPs question, monthly purchases are occurring, which is why annual PFIC reporting is required by the children.

The $25,000 deminimis PFIC filing exemption only applies if there are no reportable PFIC events and no election is made. In the OPs question, monthly purchases are occurring, which is why annual PFIC reporting is required by the children.

So if you haven't, say, chosen to MTM each year, and you make purchases or receive dividends then the 8621 is required and you pay tax at your marginal rate?