Children are not allowed both a Junior ISA (JISA) and a Child Trust Fund but many parents may not realise that they are making this mistake
Children cannot have both a JISA and Child Trust Fund
Parents who have opened a savings account for their child are being warned they could face an unexpected tax bill.
MoneySavingExpert.com (MSE) has explained that children are not allowed both a Junior ISA (JISA) and a Child Trust Fund. Both accounts are exempt from income tax and capitals gains tax – but they cannot be held at the same time.
However, because Child Trust Funds were set up automatically by the government, parents may not realise their child has one.
Child Trust Funds were set up for children born between September 1, 2002 and January 2, 2011 to encourage families to start saving, with each account given an initial deposit of up to £500.
Families could then choose to top up the account with up to £9,000 every tax year – but if the parent or guardian did not open an account, HMRC may have opened one for the child on their behalf.
MSE recommends families check if their child has a Child Trust Fund before opening a JISA to avoid a potential tax bill.
It comes after one person contacted the money-saving website to explain that he will need to close the JISA he opened for his son years ago, with a balance of £55,000, after discovering he had a Child Trust Fund, which holds just £130.
The JISA is with Hargreaves Lansdown, who told MSE the parent will either need to sell the existing JISA holdings and receive a refund of the balance, or move the assets into a bare trust.
The money-saver told MSE: “[Hargreaves Lansdown] says that when the JISA was opened, we would have signed a declaration saying that our son had no CTF. Of course, we had no idea that he had a CTF, as we were not involved in the process of opening one.”
Hargreaves Lansdown said: “We’re working with him to explain his options and will take instruction from HMRC should they suggest an alternate route forward.”
It has not been confirmed yet if the parent will face a tax bill. HMRC says any tax due on a JISA and Child Trust Fund double-up would depend on how much interest or investment gain the JISA made.
But as most children do not earn enough income to be subject to tax, HMRC said it expects tax would not be due “in the overwhelming majority of cases”.
A spokesperson said: “In cases where a Junior ISA has been opened and the child also has Child Trust Fund, the Junior ISA simply needs to be closed, with the funds placed in a non-ISA savings account in the name of the child.”
“In the overwhelming majority of cases we would not expect any tax to be due on any interest earned in the Junior ISA.”
