The Financial Ombudsman has ordered wealth manager, Brewin Dolphin, to pay a client’s £60,000 income tax bill. The firm had recommended that the client put £160,000 into a pension without first establishing that he had made a previous withdrawal from another pension plan – meaning that he was liable for income tax on the majority of the investment.
The client approached Brewin Dolphin for investment advice in August 2018. His family business had some money on deposit following a sale of land. The client wanted to invest some of the money in his own name rather than invest in his family’s pension scheme. The existing family pension was a small self-administered pension scheme (SSAS), of which he was a member, alongside other family members.
Early the following year, the client was told by his accountant that investing in the SIPP made him liable for a £60,000 tax bill
He had not contributed to a pension in the previous three years and had built up his annual allowance, so Brewin Dolphin’s adviser recommended that the client invest £160,000 in a Self-Invested Personal Pension (SIPP).
Early the following year, the client was told by his accountant that investing in the SIPP made him liable for a £60,000 tax bill. He had previously withdrawn money from a personal pension in 2015, which had triggered the Money Purchase Annual Allowance (MPAA), limiting the amount he could pay into a new pension tax free to £4,000 a year.
The client complained to Brewin Dolphin about the advice. The firm rejected his complaint, arguing that it had acted on the basis of information provided by him, and that he had failed to tell them about the previous pension withdrawal. Brewin Dolphin identified that he had been given a letter by his other pension provider about the 2015 withdrawal, which stated that he had triggered the MPAA and should give a copy to his other pension providers. It also said that the client had signed a declaration that Brewin Dolphin could only provide generic tax advice.
The client complained to the Financial Ombudsman Service, which upheld his complaint. Ombudsman Kim Parsons decided that as the letter about the earlier withdrawal was sent to the client three years previously, he may not have known that it was still relevant. He also concluded that Brewin Dolphin’s adviser had made insufficient efforts to establish the client’s previous pension arrangements. The adviser had left the boxes about ‘personal pensions’ and ‘benefit crystallisation’ blank on the Client Information Form completed before he gave the client advice.
The Ombudsman ordered Brewin Dolphin to pay the tax liability and any other costs and charges the client had incurred.
“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,” said James Burgoyne, Director – Claims & Technical, Brunel Professions. “The Ombudsman has demonstrated that advisers cannot rely on disclaimers and may be liable for costs if they fail to capture all the facts.”
Brunel secures competitive professional indemnity insurance cover for financial services professionals. To find out more visit the Brunel website or call Mark Sommariva on 0203 475 3275.