Inheritance tax given by a Friends Life adviser back in the 1990s has come back to bite the provider.
Mrs C, acting as executor of her late mother Mrs L’s estate, complained that Birmingham Midshires’ financial consultants, an appointed representative of Friends Life Services Limited, gave her mother unsuitable investment advice.
In 1997, Mrs C’s mother was advised to take out a with-profits investment bond, with £36,828 life cover, to help mitigate against her inheritance tax (IHT) liability.
But Mrs C complained the advice wasn’t suitable as an inheritance tax liability didn’t exist because the land owned by her mother was agricultural land and therefore exempt from this tax.
Friends Life rejected the complaint saying the advice was suitable and if there was any issue her mother would have raised an objection at the time.
But the Financial Ombudsman Service ruled the adviser had an obligation to establish whether there was an actual inheritance tax liability before giving advice about it.
Friends Life disagreed arguing the fact find had stated: “This has been checked out and because it is agricultural land and the son-in-law farms the land … there will be no inheritance tax liability”.
The provider therefore believes that Mrs C and her mother were made aware that no inheritance tax was payable if the land was being farmed and they therefore could have challenged the need for inheritance tax cover if it wasn’t what they wanted.
However it was also recorded on the fact find that Mrs C’s mother had a fairly substantial inheritance tax liability that the investment bond was likely to cover.
Ombudsman Dara Islam said: “I don’t think the advice was suitable. Issues central to the point of inheritance tax liability – relating to the land and whether it was for farming – don’t seem to have been bottomed out.
“Friends Life said farmers tend to have greater knowledge than the average person, of minimising tax and obtaining tax breaks. Whilst this might be true for some farmers, I’m not persuaded this was the case with (Mrs C’s mother).
“I appreciate Friends Life said both Mrs L and Mrs C could have challenged this at the time, but I don’t think they could have if they didn’t know the advice was unsuitable, and simply relied on that advice – as seems to be the case.
“Despite what Friends Life says, I’ve seen no other evidence that Mrs L was aware that she didn’t have an IHT liability (despite calculations) and choose to go ahead with the recommendation anyway.”
Friends Life was ordered to refund all premiums paid with 8 per cent simple interest from the date of payment to the date of settlement.
emma.hughes@ft.com
