Families between 2002 and 2011 urged to claim free £500 cash handout | Personal Finance | Finance

Families with children born between September 2002 and January 2011 have been told to claim a £500 free cash handout. During that period, parents were issued vouchers to open a Child Trust Fund, or HMRC opened one automatically.

By 2012, 6.1 million Child Trust Funds had been opened, with 1.7 million opened potentially without parents’ knowledge by HMRC, according to the National Audit Office. Parents were given up to £500 in tax-free savings.

They were replaced by Junior ISAs, tax-free accounts where you can save or invest money for your child (up to £9,000 in 2026/27) that is locked until they turn 18. But children aren’t allowed to have both, with doubling up leaving you at risk of an unexpected 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.

One man who set up a JISA for his son, was told it would need to be closed as his son already had a CTF. He had spent 15 years investing, for a total of £55,000 for his son.

When he looked into CTFs, he found his son had one, with the Government’s initial contribution of £50 having grown to £130. This means the JISA was technically invalid, creating an admin headache that could result in a tax bill.

Investment firm Hargreaves Lansdown said he could either sell the holdings of the JISA and receive a refund for the balance, or move the assets into a ‘Bare Trust’, which would no longer be tax-free.

The man told MoneySavingExpert.com: “[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! This is the most ridiculous case of the tail wagging the dog – losing tax-wrapper protection for £50,000 of investments all for the sake of £130 seems absurd.”

Hargreaves Lansdown said 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 [the man] 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.”