Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • Fermion
    • By Fermion 19th May 17, 8:14 PM
    • 30Posts
    • 9Thanks
    Fermion
    Whole Life Inheritance Tax Policy - IFA Complaint
    • #1
    • 19th May 17, 8:14 PM
    Whole Life Inheritance Tax Policy - IFA Complaint 19th May 17 at 8:14 PM
    I would be grateful for advice regarding a Whole of Life Inheritance Tax policy with Sun Life/Friends Life purchased some 24 years ago via a broker on the recommendation of a IFA.

    Background
    We used a IFA some 25 years ago to conduct a full financial review. The IFA had links to an Insurance Broker (which was allowed at the time).
    One of the recommendations was that we should take out a Whole of Life Policy payable on 2nd Death to cover our potential Inheritance Tax liability(at the time) of 50,000 and set up a Deed of Trust joint;y in favour of our Children.
    He looked at a number of potential suitable policies but in the end recommended a Sun Life policy.
    Fast forward a number of years and the Sun Life Policy was acquired by Friends Life. Then about 2 years ago we received a formal letter from Friends Life saying that they intend to reduce the Benefits payable on 2nd Death to 6,194 unless we increase the monthly premium by 267%.
    It appears that the policy sold to us was a unit based policy "reviewable" by the Insurance Company(after 10 & 20 years) and that performance of fund had been very poor. There was no mention of this IFA and Brokers "product particulars" documentation although this was buried in the Sun Life detailed policy documentation.
    Given that the whole intended purpose of the Whole of Life policy was to provide a trust payment of 50,000 to our heirs to cover Inheritance Tax it appears that this type of reviewable policy was totally unsuitable.
    Financial Ombudsman Service
    We formally complained about the Friends Life policy to the Financial Ombudsman Service, who unfortunately rejected the claim but did state that we may have a case against the IFA/Broker as it appears the policy may have been unsuitable as an Inheritance Tax vehicle.

    The problem is that the policy was taken out 24 years ago and although the Insurance Broker is still in business they long since had any links to a IFA service. The particular IFA in question ceased being an IFA about 20 years ago.

    Suggestions welcome for suitable courses of action?
    Should I just cancel the policy?
    Do I have a case against the original Broker?
Page 1
    • dunstonh
    • By dunstonh 19th May 17, 9:30 PM
    • 87,665 Posts
    • 52,890 Thanks
    dunstonh
    • #2
    • 19th May 17, 9:30 PM
    • #2
    • 19th May 17, 9:30 PM
    The IFA had links to an Insurance Broker (which was allowed at the time).
    Still is today.

    One of the recommendations was that we should take out a Whole of Life Policy payable on 2nd Death to cover our potential Inheritance Tax liability(at the time) of 50,000 and set up a Deed of Trust joint;y in favour of our Children.
    Very common to do that sort of thing back then. Nowadays, not as required for most people as the IHT allowance is much higher and tends to be the wealthier that do it today.

    Fast forward a number of years and the Sun Life Policy was acquired by Friends Life. Then about 2 years ago we received a formal letter from Friends Life saying that they intend to reduce the Benefits payable on 2nd Death to 6,194 unless we increase the monthly premium by 267%.
    This sounds like a reviewable premium plan. Typically they guarantee the premium for x number of years (often 10 to 15) and then review them every 5 years after that with the option to to adjust premium or sum assured depending on the performance of the underlying investments.

    A few types of that plan still exist today but most have been replaced with pure life assurance with no investment element and its possible to get full guarantee nowadays.

    It appears that the policy sold to us was a unit based policy "reviewable" by the Insurance Company(after 10 & 20 years) and that performance of fund had been very poor. There was no mention of this IFA and Brokers "product particulars" documentation although this was buried in the Sun Life detailed policy documentation.
    Its more likley that the fund performance hasnt been poor. More likely that the target growth rate was too high for modern returns.

    We formally complained about the Friends Life policy to the Financial Ombudsman Service, who unfortunately rejected the claim but did state that we may have a case against the IFA/Broker as it appears the policy may have been unsuitable as an Inheritance Tax vehicle.
    You were always going to fail to complaining to the provider and then to the FOS about the provider as the product has done nothing that was within its brief. The point about it being unsuitable is difficult to say. Generically, this type of product was suitable. Events have moved on and it went obsolete and your financial need for it has possibly gone. However, it is point of sale and date of sale that matter. Not what the situation is today and that things have changed. Complaints on this type of product are hit and miss. Usually due to technical failings rather than advice failings.

    Do I have a case against the original Broker?
    Depends on the business structure they had in place. If it's the same limited company that operated as the adviser then they maintain complaint liability. if its a different limited company then probably not.
    Should I just cancel the policy?
    Do you still have a need for it?
    Could a modern product be more suitable if there is still a need?
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • Keep pedalling
    • By Keep pedalling 19th May 17, 9:40 PM
    • 3,016 Posts
    • 3,212 Thanks
    Keep pedalling
    • #3
    • 19th May 17, 9:40 PM
    • #3
    • 19th May 17, 9:40 PM
    I can't imagine many people's IHT planning of 24 years being fit for purpose today, so yes it is probably not worth continuing with the current policy, but more importantly you should review the entire thing, and put new plans in place.

    If you wills are this old as well, they need looking at also.
    Last edited by Keep pedalling; 20-05-2017 at 12:11 AM.
    • dunstonh
    • By dunstonh 19th May 17, 10:34 PM
    • 87,665 Posts
    • 52,890 Thanks
    dunstonh
    • #4
    • 19th May 17, 10:34 PM
    • #4
    • 19th May 17, 10:34 PM
    I can't imagine many people's IHT planning of 24 years being fit for purpose today
    and perhaps an adjudicator at the FOS wouldnt have a clue about limits, issues and regulations 24 years ago unless they looked them up (probably at school and may not even be born at that time). So, whilst this product and issue is very different today, the complaint would not consider that. It would consider the position 24 years ago.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • Fermion
    • By Fermion 19th May 17, 10:56 PM
    • 30 Posts
    • 9 Thanks
    Fermion
    • #5
    • 19th May 17, 10:56 PM
    • #5
    • 19th May 17, 10:56 PM
    Do you still have a need for it?
    Could a modern product be more suitable if there is still a need?
    Thanks for the response - very helpful
    I will look at more modern products and get a number of quotes
    • Keep pedalling
    • By Keep pedalling 20th May 17, 12:20 AM
    • 3,016 Posts
    • 3,212 Thanks
    Keep pedalling
    • #6
    • 20th May 17, 12:20 AM
    • #6
    • 20th May 17, 12:20 AM
    Thanks for the response - very helpful
    I will look at more modern products and get a number of quotes
    Originally posted by Fermion
    We have a second death insurance policy that we put in place to cover any IHT that might arise on gifts should we not survive 7 years. Much cheaper that a whole life policy if you are prepaired to gift some of your estate now.
    • Fermion
    • By Fermion 20th May 17, 1:27 PM
    • 30 Posts
    • 9 Thanks
    Fermion
    • #7
    • 20th May 17, 1:27 PM
    • #7
    • 20th May 17, 1:27 PM
    We have a second death insurance policy that we put in place to cover any IHT that might arise on gifts should we not survive 7 years. Much cheaper that a whole life policy if you are prepaired to gift some of your estate now.
    Thanks, good idea, I will look into that at a later date as and when we downsize. Problem is that a fair chunk of capital is invested in Stocks&Shares ISAs and HL Vantage A/Cs which we draw the natural yield to top-up our pensions.
    Interestingly I just had a letter today from Friends Life saying that they are transferring their policies to Aviva in about 1 month!
    • Keep pedalling
    • By Keep pedalling 20th May 17, 2:28 PM
    • 3,016 Posts
    • 3,212 Thanks
    Keep pedalling
    • #8
    • 20th May 17, 2:28 PM
    • #8
    • 20th May 17, 2:28 PM
    Thanks, good idea, I will look into that at a later date as and when we downsize. Problem is that a fair chunk of capital is invested in Stocks&Shares ISAs and HL Vantage A/Cs which we draw the natural yield to top-up our pensions.
    Interestingly I just had a letter today from Friends Life saying that they are transferring their policies to Aviva in about 1 month!
    Originally posted by Fermion
    Have you looked at how the new primary residence nil rate band will affect your IHT liability? If you were still only looking at needing 50k of cover then I would have thought that might take your estate out of IHT territory altogether.
    • dunstonh
    • By dunstonh 20th May 17, 3:07 PM
    • 87,665 Posts
    • 52,890 Thanks
    dunstonh
    • #9
    • 20th May 17, 3:07 PM
    • #9
    • 20th May 17, 3:07 PM
    Interestingly I just had a letter today from Friends Life saying that they are transferring their policies to Aviva in about 1 month!
    Aviva bought Friends Life a few years ago and has been steadily moving FL stuff onto Aviva systems or rebranding some FL plans onto Aviva.

    In your case, it is just a logo change.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • atush
    • By atush 20th May 17, 3:40 PM
    • 15,809 Posts
    • 9,581 Thanks
    atush
    My OH got one of these, but doesnt have a FL product as far as he knows (has 3x aviva pensions and one WOL policy)
    • Fermion
    • By Fermion 20th May 17, 5:17 PM
    • 30 Posts
    • 9 Thanks
    Fermion
    Have you looked at how the new primary residence nil rate band will affect your IHT liability? If you were still only looking at needing 50k of cover then I would have thought that might take your estate out of IHT territory altogether.
    It's a bit complicated and difficult to forecast. I have quite a big Income Drawdown pot but at the moment will be taxed separately at death at 55% and outside IHT. My wife will also have a 150K Drawdown pot(supplemental to her teachers pension) when eventually goes into Drawdown and that will also be outside IHT.
    The problem being and other assets and our main property which at the moment are well above the IHT threshold.
    We do intend at some stage to go for a property downsize and make gifts to our children at that time but of course we have the 7 year rule. Timing will be the key I guess, which is why I liked your idea of a 7 year life policy on 2nd death.
    • rjw4
    • By rjw4 20th May 17, 7:13 PM
    • 255 Posts
    • 150 Thanks
    rjw4
    The drawdown plan won't be taxed on death? Are you both taking income from the drawdown plans as if so you should consider stopping that and taking a higher income from your investments.
    I am an Independent Financial Adviser (IFA). Any posts on here are for information and discussion purposes only and should not be seen as financial advice.
    • Fermion
    • By Fermion 20th May 17, 7:48 PM
    • 30 Posts
    • 9 Thanks
    Fermion
    The drawdown plan won't be taxed on death? Are you both taking income from the drawdown plans as if so you should consider stopping that and taking a higher income from your investments.
    Don't understand that - I thought that all drawdown plans were taxed at 55% at 2nd spouse death but after that there was no IHT liability. Isn't that correct? Have I missed something?

    For info I am only taking the natural yield (circa 3.7%) from my drawdown plan. Taking a higher income would push me close to higher rate tax band which I want to avoid
    • rjw4
    • By rjw4 21st May 17, 10:52 AM
    • 255 Posts
    • 150 Thanks
    rjw4
    If you die before age 75 the pension passes to your beneficiaries tax-free. If you die 75+ it is taxed at their income tax rate if they take income from the pension. The 55% 'death tax' was removed. Have a look online for 'pension death benefits'. Royal London has a good chart which explains it.
    I am an Independent Financial Adviser (IFA). Any posts on here are for information and discussion purposes only and should not be seen as financial advice.
    • MoneySavingUser
    • By MoneySavingUser 21st May 17, 3:33 PM
    • 1,598 Posts
    • 642 Thanks
    MoneySavingUser
    Don't understand that - I thought that all drawdown plans were taxed at 55% at 2nd spouse death but after that there was no IHT liability. Isn't that correct? Have I missed something?
    Originally posted by Fermion
    As the above poster has said the rules have changed since pension flexibility came in - so you should be ok - have a look at the table here.

    http://adviser.royallondon.com/technical-central/pensions/death-benefits/death-benefits-from-april-2015/

    If after excluding the value of your pensions your estate is above the IHT threshold, then you should speak to an accountant or IFA (or both) and take appropriate up to date advice. Your advice from 20 years ago is no good now.

    P.S. The 7 year rule can be a 14 year rule in some cases (on death any CLT or failed PET will also need to look back against any chargeable transfers in the 7 years before the gift for NRB purposes)
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

4,436Posts Today

9,448Users online

Martin's Twitter
  • Just a quick ta-ta for now. I'm taking the week off for family time with mini and Mrs MSE. So I won't be here much. Back after the bank hol

  • Ugh another one trying it! Beware https://t.co/Ab9fCRA76F

  • Just looking at the final(ish) Premier League table. The gap between the top seven and the rest is huge. Has it ever been more lopsided?

  • Follow Martin