Stocks & Shares ISA for UK spouse of a dual citizen

Hi folks, I have a few questions about saving and investing that I couldn't find a direct answer to in my searches. A few bits of background info:

I'm a UK citizen
My wife and two young daughters are US/UK dual citizens.
My wife completes her US tax return as "married filing separately"

Our daughters have both been gifted money from family over the years. They currently each have their own kids savings accounts and so are essentially losing money with current rates... We really want to invest their savings into a stocks & shares ISA (such as a Vanguard Junior ISA) for the next 10 or so years. I understand that they can't do that as they are US persons.

We also have a lump of savings in a regular, low interest quick access savings account. This is our emergency fund in case I lose my job, that will sustain us for 8 or so months. I'm thinking that we should put this into Premium Bonds or also into an S&S ISA. Again, I know we can't do that as a joint account due to my wife's US person status.

The majority of longer term savings go into my pension.

I'm wondering if I opened some S&S ISAs in my name only (one for our emergency fund, and one each for my daughters) or put some into premium bonds (again in my name only) will that cause any issues for my wife filing her US taxes? Will she have to declare any of it or pay extra tax?

Thanks—apologies if this is really basic stuff I should really know!

Hi folks, I have a few questions about saving and investing that I couldn't find a direct answer to in my searches. A few bits of background info:

I'm a UK citizen
My wife and two young daughters are US/UK dual citizens.
My wife completes her US tax return as "married filing separately"

Our daughters have both been gifted money from family over the years. They currently each have their own kids savings accounts and so are essentially losing money with current rates... We really want to invest their savings into a stocks & shares ISA (such as a Vanguard Junior ISA) for the next 10 or so years. I understand that they can't do that as they are US persons.

We also have a lump of savings in a regular, low interest quick access savings account. This is our emergency fund in case I lose my job, that will sustain us for 8 or so months. I'm thinking that we should put this into Premium Bonds or also into an S&S ISA. Again, I know we can't do that as a joint account due to my wife's US person status.

The majority of longer term savings go into my pension.

I'm wondering if I opened some S&S ISAs in my name only (one for our emergency fund, and one each for my daughters) or put some into premium bonds (again in my name only) will that cause any issues for my wife filing her US taxes? Will she have to declare any of it or pay extra tax?

Thanks—apologies if this is really basic stuff I should really know!

You can open a S&S ISA in your name without it affecting your wife. I wouldn't put an emergency fund in S&S though, I'd stick with premium bonds for that, or a cash ISA.
As your daughters are USC's you'll want to avoid S&S Isas for them too, stick with cash ISA's.

You can open a S&S ISA in your name without it affecting your wife. I wouldn't put an emergency fund in S&S though, I'd stick with premium bonds for that, or a cash ISA.
As your daughters are USC's you'll want to avoid S&S Isas for them too, stick with cash ISA's.

I agree.

 As UK/US dual citizens my wife and I keep our emergency funds in Premium Bonds.

As your daughters are US citizens, income and gains in an ISA would be US taxable. They would naturally avoid PFICs, such as UK unit trusts, investment trusts, OEICs and ETFs.

Thanks everyone—I appreciate the info.

Premium bonds does sound like the way to go for our emergency funds.

For my daughters, who are both single digit ages, is there any issue if I open S&S ISAs in my name, and put their money in there until we want to give it to them sometime after they turn 18? We are responsible for their accounts at the moment.

Thanks everyone—I appreciate the info.

Premium bonds does sound like the way to go for our emergency funds.

For my daughters, who are both single digit ages, is there any issue if I open S&S ISAs in my name, and put their money in there until we want to give it to them sometime after they turn 18? We are responsible for their accounts at the moment.

Here are the rules on childrens' ISAs

Parents or guardians with parental responsibility can open a Junior ISA and manage the account, but the money belongs to the child.

The child can take control of the account when they’re 16, but cannot withdraw the money until they turn 18.


https://www.gov.uk/junior-individual-savings-accounts

For my daughters, who are both single digit ages, is there any issue if I open S&S ISAs in my name, and put their money in there until we want to give it to them sometime after they turn 18? We are responsible for their accounts at the moment.

Keeping the ISAs in your name would for certain avoid any US reporting issues, and you can gift the money to them at the appropriate time.  Current rules in the UK are that you can gift as much as you want and as long as you live for 7 years after the gift it is free from inheritance tax, don't have to report it, just make a note of it as there is a look-back on death as far as IHT is concerned.

https://www.gov.uk/government/publications/inheritance-tax-gifts-and-other-transfers-of-value-iht403

Very quick question for @durhamlad:

You mention in an earlier post that you hold premium bonds - assuming that you have some good fortune, where on from 1040 (and other schedules) do you declare the winnings? 

I have actually declared winnings previously either along with interest and other income on Schedule B of 1040 but on one occasion on Schedule 1 of 1040 (line 9 in the 2020 form). They are not huge amounts and the IRS has never questioned either - I'm sure they might however if the big one comes along|

On form 1116 I have declared it as passive income which has allowed me to use 'unrelieved taxes brought forward' (from UK Capital Gains Tax) from earlier years - I'm sure one of the Swamis/Guru's will tell me this is not right however!

Thanks Durhamlad and Larrabee—very helpful again. I will get my emergency fund into premium bonds, and open S&S ISAs in my name for the girls. Appreciate all the info.

Thanks Durhamlad and Larrabee—very helpful again. I will get my emergency fund into premium bonds, and open S&S ISAs in my name for the girls. Appreciate all the info.

You should also look into the FBAR implications of this.

Very quick question for @durhamlad:

You mention in an earlier post that you hold premium bonds - assuming that you have some good fortune, where on from 1040 (and other schedules) do you declare the winnings? 

I have actually declared winnings previously either along with interest and other income on Schedule B of 1040 but on one occasion on Schedule 1 of 1040 (line 9 in the 2020 form). They are not huge amounts and the IRS has never questioned either - I'm sure they might however if the big one comes along|

On form 1116 I have declared it as passive income which has allowed me to use 'unrelieved taxes brought forward' (from UK Capital Gains Tax) from earlier years - I'm sure one of the Swamis/Guru's will tell me this is not right however!

I do exactly that. Declare it as interest on Schedule B.

Very quick question for @durhamlad:

You mention in an earlier post that you hold premium bonds - assuming that you have some good fortune, where on from 1040 (and other schedules) do you declare the winnings? 

I have actually declared winnings previously either along with interest and other income on Schedule B of 1040 but on one occasion on Schedule 1 of 1040 (line 9 in the 2020 form). They are not huge amounts and the IRS has never questioned either - I'm sure they might however if the big one comes along|

On form 1116 I have declared it as passive income which has allowed me to use 'unrelieved taxes brought forward' (from UK Capital Gains Tax) from earlier years - I'm sure one of the Swamis/Guru's will tell me this is not right however!

Premium bond prizes do not meet the definition of passive basket income. Consequently they are general limitation income.

Thank you - that is even better then - as presumably they fall in the same category as earned income on Form 1116 and therefore I can utilise any excess PAYE to offset any liability from (UK) tax free bond winnings? (please say YES  )

As I have $60k of carryover taxes in the general  category, does this mean that if I were to hit a big premium bond winning, I'd be able to offset any tax liability with my carryover taxes? Chance of winning big on the Premium Bonds is small I know, but we can all dream!

Very quick question for @durhamlad:

You mention in an earlier post that you hold premium bonds - assuming that you have some good fortune, where on from 1040 (and other schedules) do you declare the winnings? 

I have actually declared winnings previously either along with interest and other income on Schedule B of 1040 but on one occasion on Schedule 1 of 1040 (line 9 in the 2020 form). They are not huge amounts and the IRS has never questioned either - I'm sure they might however if the big one comes along|

On form 1116 I have declared it as passive income which has allowed me to use 'unrelieved taxes brought forward' (from UK Capital Gains Tax) from earlier years - I'm sure one of the Swamis/Guru's will tell me this is not right however!

I show as misc income and write in ‘prizes’. It’s not really interest

I show as misc income and write in ‘prizes’. It’s not really interest

I’m sure that works just as well. Treated as regular income I assume so same tax due?