The client, called Mrs S, complained to Fos her inheritance tax liability had been incorrectly calculated by Mountbatten Financial Ltd.
She said the advice firm had not taken her late husband’s nil-rate band into account.
Therefore in 2009 she purchased a whole-of-life policy with a level of life cover which exceeded what was actually needed.
A Fos adjudicator noted Mountbatten’s fact find and application both recorded Mrs S was a widow, so the adviser should have appreciated Mrs S was entitled to any unused part of her late husband’s nil-rate band.
Mrs S had also sent a copy of her husband’s will which showed that all his estate passed to her.
One of the properties shown on the fact find was owned in equal shares by Mrs S and her three children.
Therefore only a quarter of the value of this property was supposed to be in her estate in 2009.
After taking this into account and deducting both 2009 nil-rate bands it was calculated by the Fos adjudicator that the excess estate was £118,500 and the tax liability was about £47,400.
I find it surprising that liability for the failure to carry out basic financial planning is being shifted to Mrs S. David BirdWhile the advice firm argued there would have been some benefit in having the much higher amount of cover on the policy, the adjudicator thought it just as likely the estate could fall in value because of performance issues and disposals during her lifetime.
The advice firm also said it was not told the property was held in trust as this was not recorded on the fact find.
Reviewing the case, David Bird, ombudsman, said if a professional financial adviser is to give advice about inheritance tax they should have the knowledge to ask at least basic questions to properly investigate liabilities.
Mr Bird said: “The ability to transfer a spouses or deceased spouses nil rate band was well known at the point the advice was given and taking that into account is very basic inheritance tax planning.
“Furthermore it would have been straightforward to ask further questions about any trusts already in existence and any will planning. I have not seen evidence that was carried out.
“I do not agree with the implication that Mrs S should have known herself that this was relevant and raised it – she was an ordinary individual who was not an expert in inheritance tax planning – that was why she approached the business.
“I find it surprising that liability for the failure to carry out basic financial planning is being shifted to Mrs S.”
Mountbatten Financial Ltd was ordered to pay the total difference in cost between a £47,400 policy and the policy Mrs S took out, until she surrendered it.
The ombudsman calculated the sum that should have been protected was 25.5 per cent of the sum assured actually chosen - £19.50.
So Mountbatten was told to refund £56.96 for every month Mrs S paid the policy.
