Ombudsman orders adviser to pay client’s £60,000 tax bill

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A financial adviser who recommended that a client put £160,000 into a pension without first establishing whether he had previously withdrawn cash from another pension has been ordered to pay the client’s £60,000 tax bill.

The Financial Ombudsman Service (FOS) ordered wealth adviser Brewin Dolphin to make the payment after its incorrect advice made the client liable for the large tax bill.

The client, Mr B, asked Brewin Dolphin for investment advice in August 2018. His family business had money on deposit following a sale of land and Mr B wanted to invest some of it in his own name rather than using his family’s small self-administered pension scheme (SSAS).

Mr B had not contributed into a pension in the previous three years and had built up his annual allowance, so Brewin Dolphin’s adviser recommended he invest in a Self-Invested Personal Pension (SIPP).  The adviser was unaware that Mr B had previously taken money from a personal pension in 2015.  This withdrawal had triggered the Money Purchase Annual Allowance (MPAA), limiting the amount Mr B could pay into a new pension tax free to £4,000 a year.

When Mr B was told by his accountant that investing in the SIPP made him liable for a £60,000 tax bill, he complained to Brewin Dolphin about the advice. 

The firm turned down his complaint, on the grounds that Mr B had failed to tell them about the previous pension withdrawal.  The advice firm identified that Mr B should have shown it a letter from his other pension provider which stated that he had triggered the MPAA and should give a copy of the letter to his other pension providers. 

The ombudsman, Kim Parsons, decided that Mr B may not have known that the letter was still relevant as it had been sent three years previously.  He also ruled that Brewin Dolphin’s adviser had made insufficient efforts to enquire about Mr B’s previous pension arrangements.  Boxes on a Client Information Form about ‘personal pensions’ and ‘benefit crystallisation’ had been left blank by the adviser.

Brewin Dolphin was ordered to pay Mr B’s tax liability and any other costs and charges he had incurred.

James Burgoyne of Brunel Professions said: “This case sends out a warning to advisers that they must be careful to collect all relevant information when offering advice – particularly when this involves complex pension arrangements.”

The FOS has published the Ombudsman’s decision on its website.  Reports about the case have been published by Citywire Wealth Manager and FT Adviser.

Professionalindemnity.com is owned by Brunel Professions, which is a leading professional indemnity insurance broker in the UK.  Click here to get a quote or call 0345 450 1074 to speak to a broker.

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