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.
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.
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.
|click here to connect with an independent financial advisor for expert, whole of the market advice today.|