Financial planning for families in the UK with American connections

Here are frequently asked questions Americans have asked us when in the UK and want to navigate financial complexities for themselves, their spouses, children or the family.

The worldwide taxation of US citizens, encompassing all income and gains regardless of their location, presents significant complexities for everyday financial decisions. By identifying the key challenges and relevant questions to consider, informed decision-making can be facilitated.

Are my children Americans or US citizens?
If you have your baby outside the US but one parent is a US citizen, your baby might automatically be a US citizen too! The US government website has details, but it’s tricky, so talk to a lawyer for sure. They can help make sure everything is done right.
Many U.S. embassies and consulates have dedicated pages on their websites with information on birth abroad and acquiring U.S. citizenship for children born in their host country.
Here in the UK try
What are the tax implications for a child who is a US citizen living in the UK?
US children, including those born to US citizen parents outside the US, are subject to the same worldwide taxation rules as their parents. This includes the need for potential tax filing in the US.
How does the UK's tax system impact savings for US children?
UK schemes like Junior ISAs are taxed by the IRS. UK anti-avoidance rules apply if a child earns over £100 in interest from a parent’s money.
What overall advice is given for US-UK taxpayers with children?
It’s crucial to consider both UK and US tax implications for all income and savings, especially given the different treatment of certain financial products and schemes in each country.
Main tax considerations for an American spouse in the UK?
An American must comply with U.S. tax laws on worldwide income and report foreign accounts. It’s crucial to understand how income and investments in the UK are treated by the IRS.
How does having an American husband impact our family’s financial planning in the UK?

You’ll need to consider U.S. taxation on worldwide income and reporting requirements. Joint investments and property ownership might have different implications in the U.S.

Are there specific savings accounts that are best for US-UK families?

Savings options like ISAs may be tax-efficient in the UK but not recognized as such by the U.S. Consult a financial advisor for accounts that align with both countries’ regulations.

What are FBAR and FATCA, and how do they affect us?

FBAR (Foreign Bank and Financial Accounts Report) and FATCA (Foreign Account Tax Compliance Act) require U.S. persons to report foreign financial accounts and assets. Non-compliance can lead to penalties.

Can my American spouse contribute to a UK pension scheme?

Yes, but it’s important to understand how the U.S. taxes these contributions and payouts.

What is double taxation, and how can we avoid it?
Double taxation occurs when the same income is taxed by both countries. Utilize tax credits, treaties, and strategic planning to mitigate this.
Can a US citizen living in the UK take advantage of ISAs?
Yes, if they are structured correctly. Get professoinal advice. While ISAs offer tax benefits in the UK, the U.S. does not recognize these benefits, which can result in U.S. tax liabilities.
Should I just forget about investing for my child?
Not necessarily! There are other options for Americans in the UK. Junior ISAs can be a great way to save for your child’s future, but there are some important things to remember as an American.
US taxes still apply: Even though ISAs are tax-free in the UK, the IRS doesn’t recognize this. They’ll tax the underlying investments in the ISA as if they were in a regular account.
Beware of PFICs: Many collective investments in ISAs are considered PFICs (Passive Foreign Investment Companies) by the IRS, which can come with complex and punitive tax rules.
How do I Save Efficiently For A US/UK Child?
It’s important to understand the implications of US tax obligations on worldwide income and UK-specific savings options, such as Junior ISAs, to find a balanced approach. Consulting with a cross-border financial advisor is crucial to navigate these complexities and tailor a savings plan that aligns with the tax and legal frameworks of both countries.
How are my UK investments taxed in the USA?
As a US citizen, you’re obligated to report your global income and gains to the IRS, regardless of their source. This includes income from foreign jobs, investments, and asset sales. You’ll also need to disclose any foreign assets you hold.
As a US taxpayer should I use an ISA?
The Individual Savings Account (or ISA as it is better known) is a very efficient savings vehicle for U.K. taxpayers. However, the U.S. treats an ISA just like any other taxable account, meaning you are subject to U.S. income and capital gains tax on all activity within the ISA. There are strict rules about what investments are allowed to be held in an ISA and not many U.S./U.K. friendly fund structures are suitable

Here to help

Edale, as a financial adviser firm, offers various services to assist U.S. persons living in the UK with their investment and savings challenges.

Accessible advice for everyone from employees to leaders. Edale provides investment management and tax-efficient wealth planning for American (US) families living in the UK. Enabling American families to live without financial worry and compliance with US and UK rules.

US citizens living in the UK who choose to make the UK their home need to get financial advice for the stage they are at and the needs they have.

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