Poor Tax Advice Triggers £800,000 Non-Dom CGT Bill

Tax Bill

The High Court in London backed a claim from a non-domicile businessman that his financial advisers should have pointed him towards a tax specialist.

The case – Hossein Mehjoo v Harben Baker, his accountant – went before the court as Mr Mehjoo felt the accountant had failed to give him best advice over the sale of a business that triggered a £800,000 capital gains tax (CGT) bill.

His lawyers argued that had the accountant explained non-doms are not liable for CGT in the UK, he may have decided to restructure his personal and financial affairs before selling – and the firm should have referred him to a specialist if they did not have the expertise to give him the advice he required

In response, the accountants suggested they were not responsible for giving tax advice unless Mr Mehjoo asked them to.

Contractual duty

He claimed he had taken on this task when previously discussing ways to mitigate another CGT bill relating to shares in the business.

At the time of the sale, tax rules offered several schemes that would have reduced the CGT bill for non-doms.

The judge ruled in favour of Mr Mehjoo, deciding that the accountant had a contractual duty to give him general advice – including:

  • Mr Mehjoo was likely to be considered non-domicile in the UK
  • That non-dom status conferred CGT advantages
  • That if the firm was not competent to give non-dom advice, they should have suggested Mr Mehjoo should take such advice from a specialist

The judge also decided Mr Mehjoo would have sought specialist advice immediately, if the accountant had told him to, which would have significantly reduced his tax bill.

Wider implication

Although the ruling relates to a firm of accountants, the judge’s observations also apply in general to tax and financial advisers who deal with clients whose personal circumstances fall outside of the firm’s knowledge zone.

“This case shows how important a detailed fact find is to any financial business,” said a spokesman for financial firm Skandia International. “Advisers must deal more carefully with clients who may have overseas connections like expats and overseas workers.

“If a firm does not have in-house expertise, they must refer the client to someone who has the necessary qualifications and experience to handle their affairs.”

Mr Mehjoo’s lawyers even suggested to the court that their client’s non-English name should have prompted an inquiry about his tax residence status in the UK.

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Poor Tax Advice Triggers £800,000 Non Dom CGT Bill

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  • http://www.lesperanceassociates.com/ David S Lesperance

    Governments today need more money simply to meet revenue needs caused by an aging population and entitlement programs. i.e. Increased Motive;

    Whistleblowers, exchange of information agreements, FATCA, Qualified intermediary regimes etc. are increasing their ability to find hidden tax obligation whether it is inadvertent or active. ie. Increased Ability to detect;

    Mutual collection clauses in tax treaties, forfeiture laws etc are increasing their ability to collect uncovered tax owed. i.e. Ability to collect;

    For financial advisors, this means that they will increasingly be called upon by their clients to LEGALLY avoid any tax they can. Failure to do so (whether through incompetence or lack of awareness) will result in damage claims against those advisors.

    This case is just the crest of the tidal wave of litigation against financial advisors who provide incompetent or incomplete advice. Tax planning is a job for experienced experts, not for part-timers or amateurs and certainly not for “do it yourselfers”.