Inheritance Tax  

IHT errors cost IFA despite client not losing any cash

But according to the ombudsman the adviser doesn’t appear to use this inflated figure to calculate the potential IHT liability, as he identifies the amount subject to IHT as £600,000 after taking account of the joint nil rate band of £650,000.

So the ombudsman said the adviser used the right figure of around £1.25m for the overall value of the estate when calculating IHT.

To help mitigate the potential IHT liability the adviser recommended Mr and Mrs I put £300,000 into the ‘Foresight Accelerated Inheritance Tax’ plan, explaining that within the two year period the plan would pay out an insurance amount on death that would cover the inheritance tax payable and after two years it should be subject to BPR.

So in effect the plan would mean no inheritance tax would be payable out of the estate.

The ombudsman said he saw nothing to suggest Mr I was unhappy with the advice about the Foresight plan but the adviser also recommended a further £300,000 should be placed in two Aim portfolio investments that would fall out of the estate within two years.

If the adviser’s calculations of the potential inheritance tax liability were right this, together with the Foresight plan, would have taken care of the whole liability.

But the ombudsman said he doesn’t think his calculations were accurate as in January 2017 the adviser made a mistake in setting out one of the accounts the money was being obtained from.

He put a figure which was £100,000 more than the actual value of the account.

Also the ombudsman ruled what the adviser hadn’t done - in the meetings of November and December 2016, the meeting of January 2017 or the suitability letter - was calculate the potential inheritance tax liability correctly.

He hadn’t allowed anything for the investments that already benefitted from IHT mitigation – amounting to around £116,000 of the estate value.

Secondly he didn’t take account of the residential nil rate band (RNRB) which was due to come into force in April 2017.

There was no mention of this in the meeting notes but the adviser did make reference to this in his suitability letter.

But the ombudsman said the information he gave was misleading.