Background
"May you live in interesting times": whilst the story of the translation of an ‘ancient curse’ is probably apocryphal, the sentiment is certainly true: “interesting” times are usually times of trouble. 2005 marks the 17th anniversary of the collapse of Lehman Brothers, which had catastrophic consequences for the global financial markets. Since Lehman, the world has experienced a series of cataclysmic economic and geo-political events; from the credit crunch and global recession, to the housing bubble, the fallout of Brexit, the Covid-19 crisis, and the rise in interest rates, and consequent economic crisis caused by the Truss mini-budget.
These “interesting” times show no sign of abating, with political conflict in Ukraine and Israel, the installation of a new Trump government, and the recent imposition of global tariffs as part of a new era of US protectionism. For financial professionals in particular, times of financial uncertainty can lead to a significant increase in claims as businesses and individuals seek to recover, or mitigate, against financial loss.
Tax and tax avoidance: professionals in the firing line
An ever-increasing tax burden: As austerity measures increase, the tax burden on businesses and individuals will rise. Accountants and tax advisers are likely to be ‘in the firing line’ if they fail to advise their clients on the most tax-efficient way to structure their businesses and personal affairs. The abolition of the non-dom regime from 6 April 2025, and the move to a residence-based system means that individuals who have been resident for at least 10 out of the last 20 tax years will fall within the definition of ‘long-term resident’ and will be subject to UK Inheritance Tax (IHT) on their global assets. Agricultural Property Relief (APR) and Business Property Relief (BPR) will have a combined limit of £1m.
Thereafter, 50% relief applies, giving an effective 20% tax rate from 6 April 2026. With IHT being hit from all angles, advising clients (both non-doms and UK-domiciled individuals) on what to do now is essential. Individuals seeking to ‘get ahead’ of the changes may have transferred assets in advance without proper advice about the impact on their financial position and Capital Gains Tax (CGT), which may lead to claims – some of which may be very long-tail, as issues may only become apparent in future years.
Clampdown on tax avoidance: The Chancellor’s spring statement announced a crackdown on advisers who promote tax avoidance schemes. According to government data, tax advisers facilitating non-compliance are responsible for a ‘tax gap’, which represents a loss of c40bn to the UK economy. HMRC will be granted more wide-ranging powers of investigation, and will be entitled to obtain information from tax advisers, and to publish the details of tax advisers subject to HMRC sanctions. The financial penalty for ‘dishonest conduct’ is likely to increase from the current maximum of £40,000, to a fine based on the potential loss to the public purse – potentially resulting in seven-figure penalties for advisers judged to have acted fraudulently.
HMRC also intends to tackle ‘controlling minds’ and those behind the promotion of tax avoidance schemes through new targeted obligations and stronger information powers. For professional advisers, HMRC is consulting on the scope of its powers to deal with non-compliance facilitated by professional tax advisers, including the potential for stronger penalties against advisers who contribute to the ‘tax gap’. HMRC is also considering how to challenge inappropriate claims for professional privilege before the tribunal.
Misuse of Research and Development Tax Credits: Issues around Research & Development Tax Credits continue, with £4.1bn lost to taxpayers since 2020. HMRC's ongoing investigations into the misuse of R&D Tax Credits is likely to cause significant claims against accountants and tax consultants: The Ongoing Impact of HMRC's New Approach To R&D claims – DWF Legal Insight. While the number of claims is still low, this is expected to change over the next 12-18 months as the government is recruiting inspectors and debt collectors to clear the backlog. In the recent case of Collins Construction Ltd v Revenue and Customs Commissioners [2024], the First-tier Tribunal (Tax Chamber) were particularly scathing in their criticism of the professional tax adviser.
IHT and SDLT changes: Changes announced in the Autumn 2024 budget will dramatically affect the passing on of an estate for individuals, non-doms, business owners and farmers from April 2025 onwards. Again, accountants and tax advisers are likely to come under scrutiny as the new regime ‘beds in’, with the potential for claims for those who do not get to grips with the new rules quickly enough. Promoters of tax avoidance schemes will no doubt start to market bespoke ‘schemes’ designed to ‘get round’ the new rules, which could result in claims and litigation if and when such schemes are challenged by HMRC.
Pensions
‘Generation X’ retires - from accumulation to decumulation: The first generation where the majority of members will not have access to ’final salary’ pensions, as Generation X retires over the next decade we are likely to see the pensions industry grapple with new issues, including the problem of ‘decumulation’: how pension wealth built up over decades can be spent in a sustainable way without leaving pensioners without sufficient funds at the end of their retirement. Previous generations have relied on the state pension, or (for the fortunate ones), index-linked Defined Benefit (DB) pension schemes sponsored by their employers.
Most Defined Contribution (DC) schemes were small, and were not intended to provide retirement income for life. However, since the early noughties, most DB schemes in the private sector have been shut, meaning that the incoming generation of retirees will be largely dependent on DC schemes for the first time. Few will wish to buy an annuity. This issue – referred to recently by The Times as a “juggernaut of growing DC balances coming down the track” – is a growing one, with median DC pots rising from £75,000 for those born in the 1960s to projected average values of £320,000 for those born in the 1980s.
The proliferation of different pension pots from different employers exacerbates the issue, as does the problem of ‘lost’ funds. Advice from professionals about when to buy an annuity, securing a fixed income for life, will become critical. The potential for mis-selling scandals is clear. As retirees make critical decisions at a time when they may be vulnerable or have diminishing capacity, providers will need to ensure that they are protecting clients from fraud and potential financial abuse.
Individuals who have not saved sufficient for retirement may be tempted to take greater risks with their pensions, which may in turn lead to claims against investment advisers or SIPP trustees.
Virgin Media - potential claims against actuaries, pension trustees, and auditors: The recent Court of Appeal decision in Virgin Media Ltd v NTL Pension Trustees II Ltd & Ors [2024] (‘Virgin Media’) and ongoing action in relation to the Boots Pension Scheme, may lead to an increase in claims against pension professionals, including actuaries, benefit consultants, trustees, and solicitors. We are aware that some professionals advising pension schemes and their trustees made precautionary notifications to their professional indemnity insurers in June 2023 following the first instance decision.
We may also see potential claims against pension scheme sponsoring employers and their auditors around these additional pension liabilities. In February 2025, the ICAEW issued its own guidance highlighting that members must consider what impact (if any) the Virgin Media ruling has on auditors' risk assessments and planned procedures, as well as in the auditor’s report: Virgin Media: What does it mean for auditors - DWF Legal Insight.
Death and Taxes – changes to the taxation of pension assets: From 6 April 2027, any used pension funds or death benefits will be included within the value of an individual’s estate on death and be subjected to IHT. This could result in exposure to claims for pension scheme administrators, who will be required to assist Personal Representatives (PRs) or Executors to establish the value of unused pension assets and then to allocate a proportion of the nil rate band to each pension fund. Each pension fund will then need to pay their share of IHT to HMRC before personal representatives can apply for probate.
Concerns have been raised about the cost, time and stress of the additional administration work the new measures bring, especially if an amendment is needed if assets are discovered after the IHT400 (the form used by PRs for reporting the value of assets in an estate liable to IHT) has been submitted. The need to resolve the IHT position first – including to confirm that none is due – is likely to delay when PSAs can pay income or lump sums out to survivors.
This could cause cashflow issues for some surviving spouses/partners. Equally, IHT tax must be paid within six months of the death – it can take years to find beneficiaries and during that time interest is being added to the inheritance tax bill. The ICAEW has expressed concerns that the extensive communication required between PRs and pension scheme administrators will be impractical for determining the share of the nil rate band.
They believe this process, combined with data protection compliance and identity verification, will delay payouts to beneficiaries and the reporting and payment of IHT to HMRC. The complexity increases with multiple pension pots or non-UK PSAs.
The risks of a turbulent economy
Trump's tariffs: The introduction of global tariffs by the US will undoubtedly have a large impact on many, including financial professionals. Whilst only a 10% trade tariff has been imposed on all UK imports, the impact of the tariffs will be wide-spread. Stock markets have fallen considerably as a result of the tariffs and millions of people have seen the value of their pensions fall significantly. As with LDIs following the Truss budget, pension fund trustees may face criticism, and potential claims, as a result.
Covid-related claims: Covid-related claims against professionals have been relatively few to date but that may change following the recent appointment of a 'Covid Corruption Commissioner' with a focus on recovering funds following fraud. This is also likely to increase scrutiny on professionals involved in pandemic-related contracts and financial dealings and may lead to more claims of misconduct and fraud against professionals and action by their professional regulator, particularly in finance, and legal services sector.
Potential claims against insolvency practitioners: The Building Safety Act 2022 and the Leasehold and Freehold Reform Act 2024 (‘LFRA’), have introduced significant changes affecting the duties of insolvency practitioners. Section 125A requires that insolvency practitioners provide key buildings safety information to local authorities, fire and rescue services, and the Building Safety Regulator within 14 days of appointment. For higher-risk buildings, insolvency practitioners must identify relevant defects or steps needed to prevent or reduce the likelihood of fire or collapse, ensuring that important safety information is communicated quickly to the relevant authorities. We anticipate potential claims where insolvency practitioners, unfamiliar with these new obligations, fail to provide information within the specified time frame.
Secret commissions: The Supreme Court recently heard the appeals in Johnson v FirstRand Bank Limited, Wrench v FirstRand Bank Limited and Hopcraft v Close Brothers [2024] EWCA Civ 1106 concerning broker and lender liability for "secret" and "half-secret" commission payments. The judgments are likely to inform the scope of any FCA redress scheme. In December 2024, the FCA extended the period for firms to respond to complaints about motor finance arrangements not involving a discretionary commission arrangements until 4 December 2025.
The FCA have said that they will confirm within six weeks of the Supreme Court decision whether they are proposing a redress scheme, and how they will take it forward. There are concerns that, depending on the outcome of the Supreme Court appeal, the FCA will take a more interventionist approach to commission and disclosure practices across other financial products.
Conclusions
It is an unfortunate aphorism that times of global economic turmoil and uncertainty often lead to an increase in claims against professionals of all types. While the times are likely to be “interesting” for a while to come, professionals and those who insure them will need to keep an eye on the risks on the horizon.
Further reading:
Virgin Media: What does it mean for auditors | DWF
Pension challenges impacting professional indemnity insurers | DWF Group
Claims against insolvency practitioners | DWF
