Relocating to the UK with a family in 2025 brings a new layer of complexity. US citizens are still taxable in the US on worldwide income, but from 6 April 2025, the UK’s new long-term residence rules and abolition of the non-dom regime significantly change how savings, trusts and children’s education funds are taxed. This update highlights the key risks and planning points.

When you have a child who is a US citizen, there are certain tax filing requirements that need to be considered and several factors that should be taken into account when making savings for the future. Below are the key areas that parents need to know to ensure their children stay tax compliant and also some updates on the various tax reliefs that can be received.

US children – the importance of clarifying citizenship

A child born in the US will automatically be a US citizen. A child born outside the US to a US citizen parent, can also be a US citizen, but it is best to receive US immigration advice in these circumstances. A child can be a US citizen even if the child does not apply for a US passport. There are also a large number of 'accidental Americans' that were born in the US due to parents being on a work assignment.

As a US citizen, US children must comply with the same tax rules as their US parents, which includes worldwide taxation. It is possible to relinquish US citizenship but you normally need to wait until adulthood (18 years old) before this can be achieved.

US tax on dependents

Your child is your dependent for US tax purposes if they are a US citizen, under 19 (or 24 and in full-time education), and you pay more than half of their support. In the years before 2018, you were able to claim a tax-free personal exemption for each of your children, which was deductible against taxable income. This is no longer the case as all personal exemptions have been scrapped from 2018.

US children are subject to US tax on their worldwide income. It is possible that your child will need to file their own US tax return, however in many cases you are able to elect to include your child’s income on your tax return, if they are your dependent and meet other conditions, such as the child’s gross income would need to be more than $1,350 but less than $13,500.

For 2025, if your child's interest, dividends and other unearned income totals more than $2,700, amounts exceeding this may be subject to 'kiddie tax' rates. The idea behind these rules is to prevent parents from sheltering assets in their children’s name to benefit from the lower rates of tax. In 2025, the first $1,350 of unearned income is tax-free (standard deduction assuming no earned income), the next $1,350 is taxed at the child’s rate and any amount above $2,700 is taxed at the parents’ rate.

Case study: The kiddie tax

Darren and his daughter Daisy are both US persons. Daisy is 16 and Darren is dependent and therefore subject to the kiddie tax rules. Daisy earns $500 from a paper round. She also received $3,000 bank interest in 2025. Daisy’s taxable earned income is nil as the $1,350 standard deduction for dependents would use this up and the rest reduces the taxable unearned income to $2,150. Daisy will pay tax on the next $1,350 at the child’s rate 10% and the next $800 taxed at the parent’s rate 37%. Total kiddie tax = $135 + $296 = $431.

US tax relief for parents

You may be able to claim a Child Tax Credit of up to $2,200 per qualifying child under the age of 17. This is the maximum credit you can claim in 2025, but is subject to income limitations. Tax credits can also be given for qualifying childcare expenses. The amount of relief available is dependent on your adjusted gross income.

Other filing requirements

Children must comply with IRS overseas filing obligations in the same that way you do. This includes the requirement to file a Foreign Bank Account Report, where the aggregate value in their non-US accounts exceeds $10,000 at any point in the tax year.

Saving for their future – college plans

A tax effective way of saving for your children’s future can be achieved by setting up a section 529 college plan. This enables you to save for their future college costs in a tax effective way, as funds used for “qualifying higher education expenses” are not taxed. Income earned in the plan does not need to be reported on you or your child’s tax return. This can also be a good way of gifting funds to your children for estate planning purposes, without giving them the ability to control the funds.

If your child does not go to college, there will be a tax charge on future distributions from the plan. If your child goes to a UK college, there could be a tax charge on the child in the UK at the time of distribution of funds from the trust. From 6 April 2025, major changes to the UK’s trust regime mean, 529 plans established or contributed to by someone who is, or later becomes a Long-Term UK Resident (10 out of the past 20 years) may lose favourable tax treatment. Such plans may now be treated as relevant property trusts, bringing potential inheritance tax (IHT) charges on 10-year anniversaries or when assets are distributed. Income and gains inside the plan may now be taxed on the settlor annually, not just on distribution, as there is no protected settlement for UK resident settlors going forward, increasing the risk of “dry tax” liabilities.

Proposed US reforms - “Trump accounts”

In addition to existing college savings arrangements, proposed US reforms are expected to introduce “Trump accounts” from 2026 for children under 18 who hold a US Social Security Number.

Under current proposals, eligible children born between 2025 and 2028 would receive a $1,000 government contribution. Parents and others could contribute up to $5,000 per year, with investments limited to approved mutual and tracker funds.

While these accounts are expected to offer US tax advantages, the UK position is less straightforward for UK-resident families.

The UK is unlikely to recognise any US tax deferral within these arrangements. Income and gains may therefore be taxable in the UK as they arise rather than on withdrawal, and UK self-assessment reporting could fall on the parent or the child depending on the income type.

If investments are made into US funds without UK reporting fund status, the offshore fund regime may apply, meaning gains could be taxed at UK income tax rates rather than capital gains tax rates.

As with other US savings structures, cross-border advice should be sought before contributing to ensure unintended UK tax consequences are avoided.

UK matters

As always, UK-US taxpayers should consider the taxation by both countries for all income. Due to its tax-free status, creating a Junior ISA for your child can look appealing from a UK tax perspective. However, the IRS will not recognise its tax-free status and income will be taxable in full.

There are similar anti-avoidance principles in the UK with regards to reporting and taxation of your child’s income. If your child gets more than £100 interest from money sources given by a parent, the parent will pay Income Tax on all of the interest.

US children need to comply with the US tax rules in the same way that an adult would. There is no minimum age to become a US taxpayer. UK and US taxpayers should be mindful of tax planning beneficial in one country, that can cause a tax issue in the other.

Trusts and Family Wealth

Offshore trusts, including many US family structures, face significant change. The protected settlement regime is abolished from 6 April 2025. Any trust where the settlor is or becomes, a Long-Term UK resident may now be subject to UK income, gains, and IHT charges. Existing trusts need urgent review to determine whether restructuring or transitional reliefs are available.

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The full Stepping Stones series can be found here