Earlier this year The Standard spoke to several American families who are making London their permanent home, as part of an emigration movement dubbed “the Donald Dash”.
Of course, Americans relocating to the UK is nothing new and those that do will be faced with a deluge of curiosities: from jellied eels and excessive apologising, through to the different meanings of biscuit, boot, and bonnet. At the less frivolous end of the surprise spectrum are the many financial complexities that can accompany the move. These include understanding local property markets as well as the infamous Foreign Account Tax Compliance Act (FATCA), which requires US citizens to report their income to the US government, even while living overseas.
For parents, there is also children’s education to consider. The good news here is that England is one of the best-performing countries in terms of school-age attainment, with teenage literacy and numeracy improving more quickly over the past decade than many other high-income countries. But the system also comes with its own differences and complexities.
In the UK, children typically begin formal schooling at age four – up to two years earlier than the US. The structure of school levels also varies; the UK system includes primary and secondary education, with students moving to secondary school around age 11 – compared with the US’s elementary, middle, and high schools. When it comes to the curriculum, students here take GCSEs at age 16 and then select a few subjects for A Levels or the International Baccalaureate. In this way, our system places much more emphasis on early specialisation than its US equivalent.
Meanwhile, the fact that the addition of VAT on private school fees was such a contentious issue during the UK’s 2024 general election gives non-Brits an interesting insight as to how private schools – sometimes called ‘public schools’ in another idiosyncrasy of the British system – are more politicised than in the US.
American families looking to go down the fee-paying route often aim to use tax-advantaged 529 College Savings Plans to pay for their child’s education. There are now more than 16 million of these vehicles, and there are multiple UK schools and universities approved by the US Department of Education for funding via 529 savings.
But there are several pitfalls to consider, given that 529 plans are regarded by the UK government as foreign trusts. This means that in certain cases, income and gains on the account become subject to tax, even if no withdrawals are made. Secondly, because 529 plans are state administered, they have a limited investment menu of investment choices, most of which are considered offshore funds in the UK, and have punitive tax treatment while one is resident. As a result, if you sell these assets in your portfolio to pay for education costs, proceeds become subject to UK income tax.
When a UK resident American plans to start university and utilise their 529 plan, it is important to be aware of the tax implications in the UK. It does not matter where the educational institution is located if the beneficiary remains a UK tax resident while attending the institution. If a child was living in the UK with their family and decided to study at a US university, they would likely retain their prior residence while away. This can result in a student owing taxes on the withdrawals they made to cover their educational expenses.
While funding a child's education in the UK poses financial challenges for ex-pat families, planning can ease the burden. Discretionary trusts, for example, let parents and grandparents place assets in a tax-efficient structure to cover school and university fees, benefiting from the child's lower tax rate and personal allowances.
Despite the complexities of relocating, the UK remains one of the best places in the world to live, work, and raise a family. With its rich history, world-class education system, and vibrant cultural scene, London has long been a welcoming home for Americans looking to build a future abroad .
