In this episode of US-UK Tax Talk, host Aidan Grant welcomes back Patrick Mulhern, Partner at Tanager Wealth Management, for a deep dive into one of the most nuanced areas of cross border financial planning, investing for children where Americans are involved. Patrick first appeared on the show four years ago, and this return conversation explores how US and UK tax systems collide when parents and grandparents try to save and invest for minors.
Americans living in the UK face a uniquely complex set of rules when planning their finances and when children enter the picture, those complexities multiply. Together, Aidan and Patrick break down how citizenship based taxation, mismatched reliefs between HMRC and the IRS, and differences in how each country defines ownership and trust structures can complicate even simple acts of saving for a child’s education.
They start by revisiting the fundamentals of US-UK wealth management, explaining why Americans in the UK can’t rely on off the shelf financial products, and why “tax free” in one country often means “fully taxable” in the other. From there, the conversation moves through practical considerations from Junior ISAs to UTMAs and 529 plans, exploring which account structures can work, and which can quietly create years of unnecessary compliance headaches.
Investing for children is never simple and in the US-UK cross border context, every decision can carry long term consequences. Patrick and Aidan stress that parents should plan early, seek qualified advice, and choose simplicity and flexibility over aggressive tax optimization. In the end, a well structured plan not only protects wealth but gives families the peace of mind to focus on what really matters.
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Key Take Aways
US-UK Wealth Management Basics: Americans resident in the UK must navigate two tax systems simultaneously. Products that are tax advantaged in one jurisdiction, like ISAs or US mutual funds, can create taxable events in the other. Proper wealth management means identifying compliant structures that satisfy both HMRC and the IRS, not just one.
Why Children Make It Harder: Introducing minors complicates ownership, control, and reporting. Even when accounts are set up for a child’s benefit, the IRS may view them as foreign trusts, demanding disclosure and potential penalties. The UK, conversely, often sees such structures as simple nominee arrangements, leading to conflicting interpretations.
The Junior ISA Problem: For British families, a Junior ISA is the natural choice for tax free growth, accessible at 18. But for a US citizen child, the IRS ignores that UK tax relief and treats the underlying funds as PFICs (Passive Foreign Investment Companies), taxed at punitive rates. Worse, Junior ISAs are locked until age 18, meaning parents can’t unwind them once they realise the problem.
Safer US Options: UTMAs and UGMAs: US custodial accounts like UTMAs offer a simpler, more flexible alternative. They lack the tax free benefits of ISAs but avoid the cross border penalties. However, UK practitioners must determine whether these qualify as bear trusts or more substantive trust structures, a crucial legal distinction for UK tax treatment.
The 529 Plan Dilemma: The 529 education savings plan is a favourite among American families, offering tax free growth if used for qualified education costs. But in the UK, it’s often seen as a foreign trust, with unclear or adverse tax consequences. While US grandparents can use these plans for UK based grandchildren, British resident parents are generally better off avoiding new contributions.
Planning Comes First: The best results come from early, coordinated advice between cross border advisors, tax specialists, and wealth managers. Families who wait until after moving to the UK or after funding children’s accounts often find themselves facing unnecessary tax exposure and expensive clean-up.
Chapters
00:00 – Setting up for children’s education
02:00 – Why wealth management matters for US persons in the UK
06:40 – When “tax free” isn’t free across borders
10:40 – Junior ISAs and the PFIC problem
18:10 – Gifts, bear trusts, and US reporting issues
27:00 – The UTMA alternative
33:30 – What 529 plans really are
48:00 – The UK’s view on 529s and hidden risks
55:00 – Practical advice and closing reflections
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