Junior ISA USA/UK joint citizenship

rsbob

My two grandsons(aged 15 and 18) have dual USA/UK citizenship but have lived in the UK for the last 12 years or so.

Some years ago I opened a Junior ISA for both and have continued to contribute, but I am told that with the eldest now reaching 18 years old he will have to make a yearly return to the USA tax authorities, which I am led to believe is a tedious process, for the few thousand pounds that are in his account.

What should I do? It has been suggested that apart from giving up his USA citizenship I should simply take the money out of the ISA and put it into Premium Bonds which are not reportable to the US tax authorities as are any other interest bearing accounts would be reportable.

What are my/ his options?

Thanks for any help

rsbob

Plus

I would be tempted to get familiar with the process, because I imagine any kind of banking (even interest on a student account) will trigger a requirement to make a US tax return.

I realise it's a pain, but they're going to face it sooner or later if they have any dealings with the modern world, and it's better not to put barriers in the way of them saving in the future.

I'm not familiar with the US return system (I think you have to use commercial software, you can't just submit on a website like HMRC), but I would work out the lowest cost way to do that and train them up in doing it. Such is the pain of being a US citizen. Another pain is that some UK banks won't like them as clients because of the requirements that they report to the IRS - I've seen that on T&C though I don't recall which ones.

bowlhead99

You don't need to use commercial software to file the annual US return. It's just that many US residents do use software as the US equivalent of our PAYE system typically results in people getting money back and there are a whole variety of different exemptions and reliefs that can be claimed, and the free electronic filling system was more designed for people with simple affairs.

As the other poster suggests, simply avoiding the issue by avoiding earning interest on his deposits is not a long term solution because at some point he will want to earn bank interest, earn investment income (dividends and capital gains) and most obviously, get employment income.

Renouncing citizenship is one option (if tax returns are up to date) but that is going to restrict life choices (needs a visa to go and live or work in the US) which is perhaps not the smartest move for someone just coming of age and working out what to do with their life over the next decade.

So, figuring out how to do a simple federal income tax return (other forms for 'foreign' assets and cash balance reporting aren't needed for amounts <$10k) would seem to be the most sensible way forward rather than renouncing citizenship or avoiding bank interest and employment forever.

themanfromamarillo

Further to bowlhead's last point, as a "US person" he needs to report to the US Treasury if he has foreign accounts totalling $10,000 or more (so 2x$5,000 would need to be reported). Google FBAR for the info. This doesn't matter at the moment but once he accumulates some savings he'll need to file one every year in addition to a tax return.

xylophone

Some years ago I opened a Junior ISA for each

Are you sure what you have is a JISA? Do you have parental responsibility for them?

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

And they have only been available since November 2011.

Do you mean that you opened accounts in bare trust?

If so and your grandson has reached the age of 18, he has the legal right to access and control of the investment/account.

Does he have a use for the money now?

rsbob

Thanks to all for the replies. They've given me some food for thought, I hadn't considered the solution from a restricting lifestyle point of view as pointed out by bowlhead and Plus. It's a very valid point and i now think it would be daft to restrict them for the sake of making a tax return, and we'll dig into it a bit more.

xylophone - Definitely JISAs - the boys dad has parental responsibilty for them until now, but I as a grandfather can pay money into JISAs

xylophone

grandfather can pay money into JISAs

Absolutely!

At the age of 18, he has the right to access (could control from age 16).

I as a grandfather can pay money into JISAs

Absolutely! The JISA becomes an adult ISA when he turns 18 and he has the right to access as well as control(available from 16).

I suppose that if he doesn't want to go through the rigmarole at the moment, he could lend the cash to grandpa who could repay on demand.....:)