US Tax Implications for Children Under 18 Living in the UK
Many families are surprised to learn that children born in the United States may have ongoing US tax obligations even if they grow up and live entirely in the UK.
If your child is a US citizen by birth but resides in the UK, it’s important to understand what this means from a tax and reporting perspective. While in many cases no tax is actually owed, there are still rules that must be followed.
This guide explains the key points in a simple, practical way.
Why This Matters
The United States taxes based on citizenship, not residency. This means that even children must comply with US tax rules if they meet certain thresholds.
So, if your child:
- Was born in the US, or
- Has US citizenship through a parent
They may still have US tax responsibilities even while living in the UK.
Do Children Have to File US Tax Returns?
In many cases, yes but only if their income exceeds certain limits.
A child under 18 may need to file a US tax return if they have:
- Earned income $15,750 (e.g. part-time job income) above the annual threshold
- Unearned income $1350 (e.g. interest, dividends, investments) above a lower threshold
Even modest savings or investment income can trigger a filing requirement.
Parents are usually responsible for ensuring these filings are completed correctly.
The “Kiddie Tax” Explained
The US has special rules for children called the Kiddie Tax.
This rule is designed to prevent parents from shifting income into a child’s name to reduce tax.
In simple terms:
- A child’s unearned income above a certain level may be taxed at the parents’ tax rate, not the child’s
- This can result in higher tax than expected on investment income
This is especially relevant for children with investment accounts or trust income.
UK vs US Tax Treatment
The UK and US treat children’s income differently.
In the UK Children may have their own tax allowances, but there are rules around income gifted by parents.
In the US the IRS applies its own thresholds and rules, regardless of where the child lives.
This mismatch can create confusion especially when income is tax-free in the UK but still reportable in the US.
Foreign Bank Account Reporting (FBAR)
Even if no tax is due, US citizens (including children) may need to report foreign bank accounts.
This is done through the FBAR (FinCEN Form 114).
A filing is required if:
- The total value of non-US accounts exceeds $10,000 at any point during the year
This often applies to:
- UK savings accounts in a child’s name
- Junior ISAs
- Investment accounts
Parents are typically responsible for ensuring this is filed.
What About ISAs and UK Savings Accounts?
This is where things can get tricky.
While UK accounts like Junior ISAs are tax-efficient in the UK, they may not receive the same treatment under US tax rules.
In some cases:
- Income may still need to be reported to the IRS
- Additional forms may be required
- Certain investments could be taxed unfavourably
Do Children Actually Pay Tax?
In many situations, no tax is owed, especially if income is low.
However, the key issue is compliance, not just tax liability.
Failing to file required returns or reports can lead to penalties later even if no tax was due.
Practical Steps for Parents
If your child is a US citizen living in the UK, consider the following:
- Keep records of any income in the child’s name
- Monitor bank and investment account balances
- Be cautious when setting up investment accounts or ISAs
- Seek advice before transferring large sums into a child’s name
- Ensure any required US filings are completed annually
Final Thoughts
US tax rules for children living abroad are often overlooked but they can have long-term implications if ignored.
While the rules may seem complex, most situations can be managed with the right guidance and early planning.
If your child has US citizenship, it’s worth getting clarity now to avoid complications in the future especially as their savings and investments grow.
