Financial Ombudsman Service  

Aviva spared after giving wrong tax information to client

Aviva spared after giving wrong tax information to client

The financial ombudsman has spared Aviva the cost of a former client's tax bill following confusion surrounding his tax free cash entitlement.  

In a decision partially upheld in December the Financial Ombudsman Service found the provider could not fairly be held responsible for an additional £7,500 tax bill received by a client who also had an adviser. 

In 2011 the client transferred his pension of £63,000 to Aviva and from May 2013 onwards received correspondence from the provider confirming he had protected tax free cash on his policy. Aviva also told the client this tax free cash would be lost upon transfer. 

In March 2018 the client transferred his pension out of Aviva to another provider and then accessed his tax free cash. 

He then received a bill of £7,500 from HMRC as a result of accessing more than 25 per cent of his pension and on which he was required to pay tax. 

The client complained to Aviva claiming he was under the impression he was able to take "considerably more" tax free cash because the provider had written to him about protected cash on his policy. 

But in reality the client's tax free entitlement had been lost when he had first transferred from his original provider to Aviva in 2011 and, whilst Aviva apologised for not telling him this sooner, it did not accept responsibility for his additional tax bill. 

The ombudsman ultimately agreed with Aviva's position and found it was not responsible for advising the client on his options and the implications of choosing to transfer, especially as he had an adviser. 

Ruling ombudsman Kim Parsons said: "The client didn't take his tax free cash under the current Aviva plan. He transferred his plan to the other provider and then took cash.

"Aviva specifically warned the client's adviser that he would lose the total tax free cash entitlement mentioned in the email if he did this. 

"I think Aviva's paperwork also made it clear on a number of other occasions that it may not be possible to preserve tax free cash entitlements on transfer." 

But Ms Parsons found Aviva had made mistakes and communication sent to the client and his adviser had been "incorrect" and "unclear" regarding his tax free entitlement. 

She added: "The email in March 2018 was incorrect because the client had already lost his tax free cash entitlement back in 2011, so he couldn't have taken the amount of tax free cash mentioned in that email even if he'd not transferred away from the Aviva plan." 

Despite the client's calls for Aviva to pay his tax bill as a result of this miscommunication, the ombudsman ruled he had not lost out financially and the provider was not responsible for the extra money owed to the taxman. 

Aviva was however ordered to pay an additional £100, on top of the £400 it had already agreed to compensate the client, in recognition of distress and upset caused by the confusion.