Misleading IHT Investment Advice Leads To Payment Of Damages

By Proposito Team

InvestyesnoxsmallThe High Court has ordered Zurich to pay £223,000 in damages to a woman who was given inheritance tax advice by one of its appointed representatives. The product provider was Allied Dunbar which was bought out by Zurich in 1998.

The case [Angela Lenderink-Woods and Zurich Assurance Ltd, Zurich Advice Network Ltd, Cherry Lenderink, [2016] EWHC 3287 (Ch) Case No: A50MA133] concerned Angela Lenderink-Woods, who was born in the UK but who acquired a domicile of dependency in the Netherlands following her marriage to a Dutch naval captain in 1944, after which she lived in a number of overseas locations. According to the judgment, the claimant, Angela Lenderink-Woods, was introduced to a Allied Dunbar financial planning consultant called Huw Davies by one of her daughters in 2001, when she was 80 years old. Since 1980 she has been resident in Costa Rica.

She had an investment portfolio that was inherited from her mother in 1996 that was managed by National Westminster Bank. By 2001, the portfolio was worth £567,700 and, because it was based in the UK, was potentially subject to inheritance tax.

Mr Davies was a tied adviser, and following his advice, Lenderink-Woods moved her portfolio into three Allied Dunbar products: a gift and loan trust scheme, an offshore investment bond, and a portfolio bond, the assets of which were overseen by a discretionary manager.

Lenderink-Woods argued that the Allied Dunbar products were not suitable for someone not domiciled in the UK. She said the charging structure was “unnecessarily burdensome” and that despite Davies saying a 2 per cent charge would apply, once commission, Allied Dunbar’s charges, and the DFM’s charges were taken into account, it was much higher.

In 2011, Lenderink-Woods’s daughters also became concerned about Allied Dunbar’s charges.

Zurich later admitted that the charges under the bonds were about 4.5 per cent the first year and then at least 2.3 per cent each year over a 10-year period.

The court heard that at their original meeting, Davies identified that Lenderink-Woods had a gross estate of £586,677 for inheritance tax purposes, and advised there was a potential IHT bill of £137,871, which was subsequently revised to a lower figure of £130,300.

The High Court noted: ‘It is very difficult to see where that figure came from given the terms of the investment analysis which Mr Davies prepared. It is £72,000 less than Mrs Lenderink-Woods’ total estate as estimated by Mr Davies in the sum of £658,677, whereas the nil rate band was then £242,000: but it undoubtedly includes within the scope of the potential charge to UK inheritance tax at least some of Mrs Lenderink-Woods’ offshore assets.’

Thus the High Court judge overturned the decision of the Financial Ombudsman Service who previously ruled in favour of Zurich.

The damages award of £223,000 was reached by calculating the impact on the fund value to July 2016 of the ‘unnecessary charges’ that were imposed through Davies’ scheme.

Our Viewpoint

This case goes to show that while the client had sought advice, the product recommendation was not suitable given the client’s circumstances – product suitability is essential and as the advice came from a tied adviser, it is worth noting that in some cases it is likely that there isn’t a suitable product within the tied range.