Advice and the Law of Unintended Consequences

Advice and the Law of Unintended Consequences

Quite a number of potential clients feel that financial advice is both too expensive and unnecessary. Sometimes however, paying a small amount for advice puts you in a much better position overall. How that plays out for the individual depends very much on circumstances, so imagine the nightmare that will have engulfed this under-advised individual.

Mr Lobler is a Dutch national who sold the family home in the Netherlands and put the proceeds into an offshore investment bond, which consisted of 100 individual segments. The total amount invested was US$1,406,000, which in 2007 and 2008 he made two partial surrenders, without financial advice, totaling 97.5% of the amount he originally put in. Unfortunately for Mr. Lobler, UK taxation on a partially surrendered bond generated a tax bill sufficient to bankrupt him. Only after going to the Upper Tribunal of the Tax Chamber, did HMRC have to tax him at 40% of the actual gain rather than an original rate of 779%. The tribunal judgement was not published until March 2015, so Mr Lobler and his family will have been under considerable financial strain for more than 5 years. Full details of the decided case can be found at

UK tax law is not straight-forward and HMRC are not in the love and kindness business, so once you have a problem, it will cost time and money to rectify it, (assuming that rectification is possible).

Pension Freedoms have granted people much more choice with their pension funds than they have had before, but this has increased the ways that individuals can have massively bad outcomes.

Just imagine that you are about to get to 55 years old and you have a few relatively small pension schemes and a final salary scheme. Like so many people you have seen the television programmes about rental property purchase and you would like to become a landlord. Cashing in your pension schemes will generate a tax bill depending on how you take the money and could undermine your ability to live in future years. Future restrictions on the recovery of interest payments for mortgages on buy-to-let properties will undermine the profitability of rental property and could even lead to tax bills even when no profit is made. Being a landlord is no bed of roses; the property programmes never cover the dangers of poor tenants, tenant deposit schemes, energy certificates, gas safety certificates and incompetent property agents.

It can get much worse if you are attracted to Unregulated Collective Investment Schemes, (UCIS) with foreign investments, green energy, car parking spaces, carbon credits or hotel and villa developments, which can be illiquid or simply scams. At worst, you lose all of your pension money and HMRC decide these are unauthorised payments and ask for 55% tax on money you no longer have.

Advisers like ourselves see issues like these regularly and can keep you away from falling into an unsuspected bear pit. Ask us before you do something you might want to take back later!

If you would like to know more about how we can help you plan and realise your financial goals then contact us at or call us on 01223 792 196.

The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of UK legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly no responsibility can be assumed by Martin-Redman Partners its officers or employees, for any loss in connection with the content hereof and any such action or inaction.