Tenet under fire for failing to flag tax risk

The couple, referred to as Mr and Mrs W, complained they lost the inheritance tax exclusion they had built up because Tenet Connect failed to explain the implications commencing a new bond would have. 

They were originally advised to invest in a bond in 2007 by their current Tenet Connect adviser when he was working at a different firm. 

The bond taken out in 2007 was put in trust on the understanding that if kept for seven years it would fall outside the couple's estate for inheritance tax purposes. 

But in late 2012, Mr and Mrs W were advised to surrender their 2007 bond and reinvest in a new one because they were unhappy with its performance.

But in 2012 the adviser failed to point out this cancelled the existing trust and by reinvesting in a new bond the seven year cycle would start again. 

While no loss had arisen to date, Mr and Mrs W’s estate would be subject to an inheritance tax liability in relation to this bond if they passed away before the end of 2019. 

I don’t think it is unreasonable to expect this to have been brought to Mr and Mrs W’s attention.Dara Islam

However Tenet Connect argued it wasn’t their job but that of a third party - Mr and Mrs W’s estate planner – to flag any inheritance tax liability arising from investing in a new bond.

But ombudsman Dara Islam ruled it was the Tenet Connect adviser that should have warned the couple by reinvesting their bond their estate could be hit with an inheritance tax bill.

Tenet Connect were told to provide an undertaking that it will meet any inheritance tax liability in relation to new bond until the end of 2019 if both Mr and Mrs W died. 

Mr Islam said: “I’m mindful the adviser was aware - having advised Mr and Mrs W in relation to the 2007 bond - that it was held in trust, the reasons for it and the length of time remaining before it would become exempt from inheritance tax liability. 

“And so although Tenet Connect says it was only involved in investment and pensions planning, I think the potential inheritance tax liability was such a material consideration - given that the 2007 bond was held in trust - I don’t think it is unreasonable to expect this to have been brought to Mr and Mrs W’s attention.”

emma.hughes@ft.com