Warning: 'We're being forced to close and move £1,000s from our kid's Junior ISA because we didn't know they had a Child Trust Fund!'

Under HMRC rules, children AREN'T allowed both a CTF and JISA – and doubling up could land you with an unexpected tax bill.

Why your child may have a 'hidden' Child Trust Fund

Most children born in the UK between 1 September 2002 and 2 January 2011 were given up to £500 in tax-free savings by the state.

During that time, parents were issued with vouchers that they could use to open a CTF – if they didn't, HMRC would set it up on their behalf. This means your child may have a CTF even if you didn't open it yourself.

By April 2012, around 6.1 million CTF accounts had been opened in total. Of these, 1.7 million had been set up by HMRC, according to a 2023 report from the National Audit Office.

CTFs are effectively now 'dead' accounts – as you can't open new ones. They were replaced by JISAs, which are tax-free accounts that let you save or invest up a certain amount for your child each tax year (£9,000 in 2026/27) with the cash locked away until they turn 18. If you're 16 or 17, you can also open one of these accounts for yourself.

'Ridiculous': £55,000 junior ISA to be closed over £130 CTF

One MoneySaver, who asked to remain anonymous, recently got in touch with us to let us know that a JISA he opened for his son years ago will need to be closed – all because of a CTF he wasn't previously aware of.

He'd spent the past 15 years building the JISA balance to around £55,000 with investment firm Hargreaves Lansdown.

But this year, after seeing a social media post from MoneySavingExpert.com founder Martin Lewis about reclaiming lost CTFs, he decided to do a search. That's when he discovered that his son – born just three months before the Government stopped automatically opening CTFs for newborns – had one in his name.

The CTF he tracked down only contained £130 – what the Government's initial £50 contribution had grown to over the years. But its existence technically made the JISA invalid, causing a major admin headache and – potentially – a tax bill (though this is yet to be confirmed).

Hargreaves Lansdown says the MoneySaver now has two options – to sell the existing JISA holdings and receive a refund of the balance, or move the assets into what's called a 'Bare Trust', which means nothing needs to be sold, but the investments are taken out of the tax-free ISA wrapper.

Hargreaves Lansdown told us it doesn't see cases like this often, but they do happen. A spokesperson for the firm said: "We empathise with how frustrating this will be for [your reader] after investing for his son's future over a number of years. We're working with him to explain his options and will take instruction from HMRC should they suggest an alternate route forward."

Doubling up on a JISA and CTF could land you with a surprise tax bill

HMRC says you may have to pay tax, including Capital Gains Tax, if a JISA is closed because the child already has a CTF – but this will depend on how much interest or investment gain the account made, any other income the child received during the relevant tax years, as well as the other specific circumstances of the case.

It's important to note that children's income is subject to tax just like adults' income – but most children don't earn enough to pay tax, thanks to the personal allowance (and other tax-free allowances).

As a result, HMRC told us it expects tax WON'T be due "in the vast majority of cases" where a JISA is found to be invalid due to an overlooked CTF. But this can vary depending on your and your child's exact circumstances. For more on how children's savings are taxed, see our full Children's savings guide.

Check for a Child Trust Fund BEFORE opening a junior ISA

As explained above, if your child was born before 2 January 2011, they may have a Child Trust Fund in their name (which may have been set up by HMRC on their behalf).

If you're not sure, you can check using a free tool on Gov.uk. If you want more info, we also have full, step-by-step help in our Reclaim your Child Trust Fund guide.

If you do discover a lost CTF, you can opt to transfer its balance into a JISA. Before opening the JISA, check if your chosen provider accepts transfers from CTFs (most do), then make sure you follow its official transfer process, which will include the CTF being closed, to avoid any issues later down the line.

Note that a small number of children born before January 2011 may not have a Child Trust Fund – for example, those who weren't UK citizens at the time. If that's the case, they can open a JISA as normal now.