Inheritance Tax  

Ombudsman finds against adviser in IHT case

Ombudsman finds against adviser in IHT case

The Financial Ombudsman Service has upheld two complaints against an advice firm which is closing its doors.

Kellands Northern Ireland has been told to pay the inheritance tax on behalf of two people it advised to invest £500,000 in an offshore investment bond under a discounted value arrangement (DVA).

Earlier this year FTAdviser reported that Kellands had applied to cancel its permissions with the Financial Conduct Authority.

Article continues after advert

At the time it had been subject to 12 complaints in the past three years and had seven outstanding – with the Fos upholding 91 per cent of them.

In the two complaints upheld last month ombudsman Doug Mansell found in favour of the pair after it turned out 49 per cent of their investment was still liable for IHT.

Mr Mansell said: “I appreciate there are a number of ways an individual can take action to mitigate IHT. These tend to have their various advantages and disadvantages.

“The DVA Kellands recommended has some similarities with a discounted gift trust. But I’m not convinced it was obviously more suitable than a discounted growth trust (DGT).

“The points Kellands has made in favour of the DVA don’t seem to justify its recommendation.”

In 2008 Mr K and Mrs K both sought advice about mitigating their potential IHT liability and were recommended the offshore investment bond under a DVA.

In 2015 they both complained to Kellands saying they should have been advised to use a DGT instead. If this had happened, they said, the investment would now be outside the estate.

Kellands had said the adviser’s preference would have been to use a DGT but Mr Mansell said there was no reference to this in the documentation at the time.

Instead, he said, the only option mentioned in the adviser’s suitability report is the DVA.

Mr Mansell said Kellands should pay any IHT liability falling to Mr K’s estate on his death within seven years of this decision, up to 40 per cent of the sum he invested in 2008.

Because Mrs K has died, Mr Mansell said it was possible to assess the loss to her estate caused by the unsuitable advice.

The representatives of Mrs K’s estate provided evidence that an IHT payment of £60,212 was made and he told Kellands to repay this.

According to the FCA register Kellands Northern Ireland is authorised but has applied to cancel its permissions.