An IFA has been ordered to cough up £250 for giving inheritance tax advice mistakes – even though the client wasn’t financially worse off as a result of their errors.
The client, referred to as Mr I, complained Smith & Pinching Financial Services Ltd gave him the wrong advice about the investments he needed to make to deal with his and his late wife’s potential inheritance tax (IHT) liability.
Ombudsman Philip Gibbons came to the conclusion the adviser had made a series of errors when calculating Mr I's IHT liability which meant he received an unnecessary recommendation.
In a final decision, Mr Gibbons said: "It is clear the adviser’s calculations of the potential IHT liability were wrong and led him to make recommendations which were unnecessary.
"I can see nothing wrong with the adviser wanting to involve Mr I’s accountant given an issue had arisen over the IHT advice he had provided and Mr I had discussed the IHT position with his accountant himself anyway.
"Mr I referred to paying a lot of money in trail commission. But I have seen no evidence of what was paid or that this is something S&P weren’t entitled to - he hasn’t suggested the investments he has actually invested in through S&P are unsuitable."
S&P had been providing a discretionary management and advisory service to Mr I and the late Mrs I for some years.
Meeting notes from as early as 2010 record the discussions the adviser had with them about their investments and inheritance tax mitigation was raised on a regular basis, although Mr and Mrs I didn’t make any significant inroads into their potential liability until 2016.
In August 2016 the adviser referred to discussing Mr and Mrs I’s assets to get an up to date, but generic, value for their estate.
He recorded the managed portfolio as amounting to just short of £496,000, residential property at around £250,000 and the value of self-managed or deposit funds of around £498,000.
As a result of that meeting Mr and Mrs I each invested a small amount, a total of around £36,000, in two investments that would benefit from business property relief (BPR) in two years, so would fall out of the estate for inheritance tax purposes at that time.
At a further meeting in November 2016, inheritance tax planning was again discussed and the value of the house was still put at £250,000.
But the amount for investments and deposits was significantly different to what was recorded by the adviser three months earlier - he puts this at around £1.25m compared to just short of £1m in August.
Together with the value of the house this would suggest an overall estate value of around £1.5m – which from the information the ombudsman saw when considering the complaint was still an overvaluation.
S&P argued Mr I hadn’t been misadvised or misled either about the need for inheritance tax planning, the assessment of his liability and the IHT calculation.