The Financial Ombudsman Service has ruled Tenet Connect Limited must compensate a client’s estate for failing to protect it from an inheritance tax bill.
In July 2007 a client, referred to as Mr C, met with an adviser from Tenet Connect Limited and was advised to invest money from the sale of a house in a bond.
He expressed a wish that it be placed in trust so that it would fall outside the inheritance tax net and the adviser recommended he place the bond within a discounted gift trust.
The trust would allow him access to the income, but take the capital outside the inheritance tax net.
However, the life cover which was part of the trust arrangement was declined due to Mr C’s health, which meant the bond wasn’t placed in trust.
While the Tenet Connect adviser claimed to recollect that Mr C then changed his mind and no longer wanted to worry about inheritance tax planning, fact find documentation from 2012 referred to the bond being held in trust.
A man who held power of attorney for Mr C wrote to Tenet Connect in October 2013 after he discovered the bond wasn’t held in trust.
Tenet Connect explained to the man with power of attorney that at the time Mr C wasn’t in good health and had decided he didn’t wish to bother with a trust for the bond if no discount was available.
The adviser, who had moved abroad, had overlooked the updating of the business records that still showed that the bond was held in trust.
Tenet Connect apologised for this oversight and then took no further action to mitigate inheritance tax.
Mr C died in late November 2014 and the estate has had to pay inheritance tax on the bond.
The man with power of attorney complained to Tenet Connect, which rejected the complaint, arguing again Mr C hadn’t wished to proceed with the trust and adding he had been made aware that it hadn’t been set up due to his health.
At this point, the Tenet Connect adviser added in later years Mr C became disillusioned with planning and took the view that his beneficiaries were going to inherit a considerable sum and the taxman could take his share.
The man with power of attorney then brought the complaint to the Financial Ombudsman Service.
The ombudsman ruled there wasn’t enough evidence to show that Mr C had been made aware that the trust hadn’t been set up.
Ombudsman Ivor Graham said the business was relying on recollections of meetings and conversation which hadn’t been recorded.
Mr Graham said: “I appreciate the recollections of the advisers who dealt with Mr C and their view that Mr C had changed his mind after August 2007 and he no longer wanted to worry about inheritance tax planning.
“These are, in the main, recollections of Mr C’s views long after 2007 and I am not persuaded that he had a change of heart at that point.
“It may well be that he did change his view much later, but I suspect that he was minded to continue some IHT planning in 2007.
“I have noted Mr B’s comments that while Mr C did have health issues in 2007 he continued to work until 2010 and he still retained his mental faculties.
“Given the fact find documentation from 2012 still referred to the bond being held in trust I consider it is more likely than not that Mr C thought it was in trust.
“I have therefore concluded that the business should cover the IHT liability that arises on the bond.”
Tenet Connect Limited was ordered to reimburse any inheritance tax paid by the estate, or payable, if not yet paid, that arises on the Skandia bond taken out in 2007.
emma.hughes@ft.com
