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Tribunal upholds investor’s claim over £383k tax bill

Investors who have overpaid tax when drawing money from investment bonds could reclaim it through the courts following a ruling in favour of an investor who was landed with a £383,000 tax bill.

The Upper Tribunal ruled in favour of Joost Lobler last week after he challenged HM Revenue & Customs over the bill.

Lobler invested £960,000 in 100 life insurance policies with Zurich Life.

In 2006 he withdrew £510,900 and in 2008 withdrew a further £472,230.

But due to the method of withdrawal he chose, he was ordered to pay £383,000 in tax.

Tax withdrawals from investment bonds can be made either by withdrawing across each of the individual policies, or by selling one or more of the individual policies. The method chosen can have a significant impact on the tax the individual must pay.

The judgment says: “This large tax liability is the direct result of Mr Lobler selecting Option C on the claim form provided by Zurich rather than a different option under which the deemed chargeable gain and therefore the tax charge on Mr Lobler would have been significantly lower.”

The tribunal ruled that in circumstances where the mistake is deemed to be sufficiently serious, the individual should be put in the same position they would have been had the most efficient withdrawal method been chosen.

Old Mutual Wealth financial planning expert Rachael Griffin says the ruling could open up an avenue for other bondholders to seek to recover tax paid on withdrawals.

She says: “This is a complex area and it is not uncommon for customers to process a surrender themselves, without taking advice, and inadvertently create an unnecessary tax liability.

“The Upper Tribunal ruling could make it possible for those individuals to rectify a mistake which has cost them tens of thousands in tax.”



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There are 6 comments at the moment, we would love to hear your opinion too.

  1. Staggering!! After all the avoidance crackdowns now the courts are saying that you can play trial and error with tax on investment bonds!!

    One wonders on a separate note whether there is an issue of “Clear, Fair and Not Misleading” communications from Zurich in the first place?

  2. That is some PI claim!

    At the risk of sounding like a know it all, I guess this example is the reason why Advisers should always calculate the tax due on partial surrender across all segments, v total surrender of whole segments. Further, it is always good policy to set out your calculations for the client, and indicate the likely tax bill in advance.

    Given that everyone has a minimum of QCA level 4, such a ‘surprise’ tax bill, can only result from ineptitude or laziness?

  3. At least HMRC is paying it instead of the industry

  4. Can we please have a little more accuracy in the reporting.

    Look at the figures you presented:

    £960k invested. A total of £983,130 withdrawn. I’m no actuary but that looks like a gain of £23,130. How in tarnation can £383k tax be due on this? Or am I just an ignoramus?

  5. @Simon

    Maybe so but there is a moral hazard argument. As @ Richard Leeson suggests does this create precedent?

  6. @Sam

    The whole liability argument has become hugely skewed! IF PI insurers discover there is a possibility of claims in an area they simply exclude it at renewal making PI all but worthless.

    Presumably Zurich is not authorised to give advice – what if one of their staff had got it wrong???

    More worryingly we seem to to be edging towards a situation where if an adviser engages with a client in any way and that client later does something reckless or stupid after that engagement it is still potentially the adviser’s fault – and that is the most worrying thing to me…

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