Both account types are exempt from income tax and capital gains tax, but a Junior ISA (JISA) and a Child Trust Fund cannot be held simultaneously.
Because Child Trust Funds were set up automatically by the government to encourage families to start saving, some parents may not realise their child has one. The accounts were created for children born between 1 September 2002 and 2 January 2011, with each receiving an initial deposit of up to £500. Families could add up to £9,000 every tax year, and if a parent or guardian did not open an account, HMRC may have opened one on the child's behalf.
Check before opening a Junior ISA
MSE recommends that families check whether their child already has a Child Trust Fund before opening a JISA, in order to avoid a potential tax bill.
The warning follows the case of a parent who contacted MSE saying he will need to close the JISA he opened for his son years ago, which has a balance of £55,000, after discovering the child also had a Child Trust Fund containing just £130.
What are the options?
The JISA is held with Hargreaves Lansdown, which told MSE that 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 parent 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."
Will tax be due?
It has not yet been confirmed whether the parent will face a tax bill. HMRC said any tax due on a JISA and Child Trust Fund double-up would depend on how much interest or investment gain the JISA made.
Because most children do not earn enough income to be subject to tax, HMRC told MSE it expects tax would not be due "in the vast majority of cases".
