Kiddie tax UK guide: one child's savings, two different taxpayers

Figures relate to tax year 2026 (US) · 2026-27 (UK)

If your American child in Britain has more than $2,700 of unearned income in 2026, the kiddie tax UK families meet on Form 8615 applies. The excess pays tax at your marginal rate. Yet it still goes on your child's own US return.

Britain has its own rule with a similar aim and a different method. If money you gave your child earns over £100 in a tax year, HMRC treats all of it as your income. So one savings account can have one taxpayer in Washington and another in London.

This guide starts with those two rules and the gap between them. Next, it covers the Form 8814 election, the child's filing threshold and foreign tax credits. Then it turns to Junior ISAs, Child Trust Funds, Premium Bonds and the FBAR.

Key takeaways

• For 2026, Form 8615 applies when a child's unearned income is more than $2,700.
• The kiddie tax UK parents face covers children under 18, most 18-year-olds and many full-time students aged 19 to 23.
• Form 8814 lets you report the income on your own return instead, if it is only interest and dividends and the child's gross income is between $1,350 and $13,500 for 2026.
• In the UK, interest over £100 a year from money a parent gave counts as the parent's income under section 629 of ITTOIA 2005.
• The foreign earned income exclusion never covers interest, dividends or prizes.
• Junior ISAs and Child Trust Funds are tax-free in the UK but taxable in the US, and fund-based accounts bring PFIC reporting.
• A child whose UK accounts pass $10,000 in total at any point needs an FBAR, which a parent signs.

What is the kiddie tax UK families keep running into?

It is a US rule that stops parents moving investments into a child's name to use the child's low rates. Above a set amount, the IRS charges a child's unearned income at the parent's rate. It applies to American children wherever they live. So a child in Manchester faces it just like a child in Ohio.

Unearned income means anything that is not pay for work. Bank interest, dividends, fund income, capital gains, prizes and taxable trust income all count. Because the US taxes citizens on worldwide income, British interest sits in the same sum as American interest.

The rule does not create a new tax. Instead, it changes the rate on part of the child's income. The child still files and the bill still belongs to the child. But the rate comes from your return, so you need your own figures first.

When does a child need Form 8615 for 2026?

When the child's unearned income is more than $2,700 and the child must file a return. At least one parent must also be alive at the end of the year, and the child cannot file jointly. The $2,700 trigger is twice the $1,350 base amount that Revenue Procedure 2025-32 sets for 2026.

The current Instructions for Form 8615 (opens in a new tab) are the 2025 edition, and they use $2,700. For 2026, Revenue Procedure 2025-32 keeps the base amount at $1,350. So the trigger stays at $2,700 for the 2026 return, which most families file in 2027.

Notably, the test looks at unearned income alone. A teenager with a Saturday job and large savings faces the test on the interest, not the wages. Still, earned income matters for the age tests and the standard deduction.

Which children count for the kiddie tax?

Three groups. First, any child under 18 at the end of the year. Second, a child aged 18 at year end whose earned income did not exceed half of their support. Third, a full-time student aged 19 to 23 at year end who meets the same support test.

The support test trips up many British families. A student whose fees and rent you pay will rarely earn half of their support. So a 21-year-old with a matured Child Trust Fund can still fall under the kiddie tax.

Once the child turns 24, or stops full-time study after 18, the rule falls away. Our guide to a dual citizen child turning 18 covers the other changes at that birthday.

How does the IRS work out the tax on a child's unearned income?

In three layers. For 2026, the child's standard deduction as a dependant covers the first $1,350 of unearned income. The child's own rate, usually 10%, applies to the next $1,350. Everything above $2,700 counts as net unearned income and pays your top rate, if your rate is higher.

Form 8615 finds the extra tax you would pay if you added the child's net unearned income to your own. That extra tax becomes the child's tax on that slice. If you have more than one child under the rule, the forms share the calculation.

Qualified dividends and capital gains keep their lower rates inside the sum. So a child with shares may pay less than the headline rate suggests. However, the timing problem remains. You cannot finish the child's return until you know your own taxable income.

Why does the UK tax the same interest as the parent's income?

Because of section 629 of the Income Tax (Trading and Other Income) Act 2005. When a parent's gift to an unmarried child under 18 produces income, the law treats that income as the parent's. A de minimis applies. If income from the parent's gifts stays at £100 or less in the tax year, the rule does not bite.

The text of section 629 (opens in a new tab) applies to any settlement. A simple gift of cash into a child's account counts as one. The rule covers stepchildren too. Because the limit applies per parent and per child, each parent has a separate £100.

Above £100, the whole amount moves to the parent, not just the excess. Grandparents, other relatives and friends sit outside the rule. Junior ISAs and Child Trust Funds do too, according to the GOV.UK guide to savings for children (opens in a new tab).

Where do the US and UK rules clash?

On who the taxpayer is. The US always treats the child as owner of the income and taxes it on the child's return, at your rate. The UK treats you as owner of parent-funded interest above £100. So the same pound of interest belongs to your child in one country and to you in the other.

That matters for credits. The US foreign tax credit relieves foreign tax that the person reporting the income paid. If HMRC charges you while the IRS charges your child, the child has no British tax to credit. Then the family can pay twice on one account.

The tax years differ too. The US year runs from January to December. The UK year runs from 6 April to 5 April. So 2026 interest straddles two British years, and you need to split each figure by date.

A worked example with the arithmetic

The figures below are illustrative and use round numbers. Lily is 12, a US citizen in London, and her parents gave her £40,000, and the account pays £1,500 of interest in 2026. Her grandparents gave her shares that pay £1,200 of dividends. Assume $1.30 to the pound.

1. Interest in dollars: £1,500 at $1.30 is $1,950. Dividends: £1,200 at $1.30 is $1,560.
2. Total unearned income: $1,950 plus $1,560 is $3,510, so it passes the 2026 kiddie tax UK trigger of $2,700.
3. Lily's standard deduction covers the first $1,350.
4. The next $1,350 pays her own 10% rate: $135.
5. Net unearned income: $3,510 minus $2,700 is $810. At her parents' 24% rate, assuming ordinary rates for simplicity, that is about $194.
6. Lily's US tax: $135 plus $194 is about $329, on her own return with Form 8615.
7. UK side for 2026-27: the £1,500 of interest came from parental gifts and exceeds £100, so it counts as her parent's income. If that parent pays higher-rate tax and has used the £500 Personal Savings Allowance, the bill is £1,500 at 40%: £600.
8. The £1,200 of dividends came from grandparents, so they stay Lily's. They fall inside her £12,570 Personal Allowance, so no UK tax arises.

So Lily owes about $329 in the US. Her parent owes £600 in the UK on interest that the US says is Lily's. Lily paid no British tax herself, so nothing offsets the $329. In practice, look at whose name the money sits in before the next tax year starts.

Can you put your child's income on your own return instead?

Yes, through the Form 8814 election, if you meet the conditions. For 2026 the child's gross income must exceed $1,350 and stay under $13,500. It must come only from interest and dividends, including capital gain distributions. The child must be under 19, or under 24 if a full-time student.

The Instructions for Form 8814 (opens in a new tab) add more limits. The child cannot have made estimated payments or had tax withheld. The child also cannot file a joint return. If you elect, the child does not file at all, which saves a second return.

Under the election, the first $1,350 carries no tax and the next $1,350 pays 10%. The rest joins your own income. For Lily, that means $135 plus $810 on her parents' return. Because HMRC already taxes her interest as her parent's, some families like having both on one return.

When is Form 8814 the wrong choice?

When it pushes up your adjusted gross income, when the child has other kinds of income, or when the child would pay less alone. Extra income can cut credits and deductions that depend on income. It can also add to your net investment income. On dividends, it can cost up to $135 more.

Prizes rule the election out. Premium Bond prizes are not interest or dividends. So a child with one taxable prize cannot use Form 8814 that year. Trust income and gains on shares the child sold also take the child outside the election.

Also, the Form 8814 instructions say nothing about foreign tax credits. If the child paid British tax on any of the income, take advice before electing. When in doubt, a separate return keeps the figures clean.

Does your child have to file a US return of their own?

Yes, if the child's unearned income exceeds $1,350 for 2026, unless you make the Form 8814 election. So a child can need a return well before the kiddie tax applies. For example, a child with $2,000 of interest files a return but pays at their own rate, with no Form 8615.

Earned income has its own threshold. It follows the single standard deduction, which Revenue Procedure 2025-32 sets at $16,100 for 2026. Few children in Britain reach it. Separate gross income tests apply when a child has both kinds of income.

If your child cannot sign because of age, you sign for them as parent. Our US federal returns service prepares children's returns with the parents'. That way the Form 8615 rate comes from the same figures.

Why can't the foreign earned income exclusion help?

Because it only covers pay for work done abroad. The 2026 exclusion is $132,900 under Revenue Procedure 2025-32. But interest, dividends, gains and prizes count as investment income, not earned income. A child with no job has nothing the exclusion can touch, however large the account.

Parents often assume their own exclusion protects the household. It does not. Your salary may fall outside US tax while your child's interest stays fully taxable. Also, the kiddie tax uses your taxable income after the exclusion when it sets the rate.

So the real relief for a child's investment income is the foreign tax credit. That only works where the child personally paid British tax on the same income.

Can your child claim a foreign tax credit on Form 1116?

Yes, if the child paid UK tax on income that also appears on their US return. The credit goes on the child's own return, usually in the passive category. But most British children pay no UK tax at all. Their income usually sits inside the £12,570 Personal Allowance for 2026-27.

Credits matter most for older children with larger funds, or for trust income. For example, a payment from a UK trust may arrive with British tax already taken off. In that case, ask the trustees for the tax figures, because the child's US return needs them.

Our guide to Form 1116 and the foreign tax credit covers the categories and the limit. For a child, the point is simple. No British tax paid by the child means no credit on the child's return.

How does the US treat Junior ISAs and Child Trust Funds?

As fully taxable, even though Britain treats them as tax-free. The US does not recognise ISA wrappers, so interest, dividends and gains inside them count as the child's income each year. The 2026-27 Junior ISA limit is £9,000, and the same yearly limit applies to a Child Trust Fund.

Child Trust Funds went to children born between 1 September 2002 and 2 January 2011. A child cannot hold both, but you can move a fund into a Junior ISA. The child takes control at 16 and can withdraw at 18, according to the GOV.UK Junior ISA guide (opens in a new tab).

These accounts sit outside the parental settlement rule, so their income stays the child's in the UK. So a cash Junior ISA avoids the clash described earlier. Our guide to Junior ISAs for an American child works through the account choice.

Why do fund-based Junior ISAs cause a PFIC problem?

Because most stocks and shares Junior ISAs and Child Trust Funds hold UK or Irish funds. The US treats those as passive foreign investment companies. A PFIC brings a separate Form 8621 for each fund. It also brings a harsh default tax on gains and larger payouts, on top of the kiddie tax.

Many Child Trust Funds sat in default stakeholder funds for years. So a teenager can reach 18 holding a pooled fund that has grown with no US elections in place. The PFIC charge then lands on a young adult's first return.

A cash Junior ISA avoids all of this. If a fund account already exists, review it before the child turns 16 and starts making choices alone.

What about Premium Bond prizes and gifted shares?

Both count as unearned income for the kiddie tax. Premium Bond prizes carry no UK tax but stay taxable in the US, usually as other income. Dividends from shares a grandparent gave belong to the child in both countries. The UK parental rule only reaches gifts from parents.

A single large prize can push a child over $2,700 in one year. Then, because prizes are not interest or dividends, Form 8814 is off the table and the child files Form 8615. Our guide to Premium Bonds and US tax explains how to report prizes.

Gifted shares also count towards the FBAR if they sit in a UK account in the child's name. So a grandparent's gift can create both a tax return and a bank report in the same year.

How do UK trust distributions to a child fit in?

Taxable trust payments to an American child count as unearned income and towards the $2,700 trigger. If a parent created the trust, section 629 may treat the income as the parent's in the UK. A trust from grandparents usually leaves the income with the child. Either way, the US sees the child's income.

The US usually treats a British trust as a foreign trust. So a child receiving payments may also need Form 3520 to report them. That form sits outside the kiddie tax but arrives in the same filing season.

Trust income also stops Form 8814 from working, because the election covers only interest and dividends. Expect a separate return for the child in any year the trust pays out.

Does your child need an FBAR?

Yes, if the child's foreign accounts together passed $10,000 at any point in the calendar year. That includes bank accounts, Junior ISAs, Child Trust Funds and Premium Bonds. The FBAR falls due on 15 April, with an automatic extension to 15 October. It goes in the child's name.

If the child cannot file because of age, a parent or guardian files and signs. FinCEN's guidance on filing for a child (opens in a new tab) asks for a parent or guardian title in the filer field. Keep a copy with the child's tax papers.

The FBAR is a separate duty from the tax return. A child with $15,000 in a cash Junior ISA may owe little or no tax. Still, that child needs an FBAR every year.

Common mistakes

• Assuming tax-free UK accounts are tax-free in the US.
• Filing the parents' return late, so nobody can set the Form 8615 rate in time.
• Using Form 8814 in a year with a Premium Bond prize or a trust payment.
• Ignoring the kiddie tax UK clash, so the parent pays HMRC on interest that the child also reports to the IRS.
• Missing an FBAR because the family treated the child's balances as the parent's.
• Leaving a default Child Trust Fund in pooled funds until the child turns 18.

In our practice, the parental settlement clash is the point families most often miss. They know the child needs a US return. Yet nobody has told them HMRC wants the same interest on the parent's return.

How to check your child's position each year

1. List every account and holding in the child's name, including Junior ISAs, Child Trust Funds and Premium Bonds.
2. Note who funded each one: parent, grandparent or someone else.
3. Add up the calendar-year interest, dividends, gains, prizes and trust income in dollars.
4. If the total exceeds $1,350 for 2026, plan for a return or a Form 8814 election.
5. If it exceeds $2,700, the kiddie tax UK rules apply, so prepare Form 8615 using your own final taxable income.
6. Check parent-funded income against the £100 UK limit for each tax year from 6 April.
7. Check the highest combined balance against the $10,000 FBAR threshold.

How US UK Tax Accountants helps

On kiddie tax UK work, we prepare the child's US return, Form 8615 or the Form 8814 election, and any FBAR. We do it alongside your own US and UK returns. So the parent rate, the £100 test and any foreign tax credit all come from one set of numbers.

If your child has savings, a fund-based Junior ISA or a trust payment, contact our team before the next filing season. We will tell you which forms your child needs and whether a different account would cut the bill.

This article is general information, not personal tax advice. Check your own facts with an adviser before acting.

Last reviewed: 12 November 2026.