Tax avoidance compensation could hit advisers
Advisers could face compensation claims following a ruling in April which labelled a film investment project as an “aggressive” tax avoidance scheme.
Law firm Pannone is acting on behalf of two clients who claim they were not advised that they would be liable for income tax if HM Revenue & Customs (HMRC) challenged the Eclipse 35 film partnership scheme.
HMRC’s ruling could hit thousands of investors in similar schemes.
Kit Sorrell, senior professional negligence partner at the Manchester-based law firm, told the Financial Times the scheme had gone “horribly wrong”.
Mr Sorrell added: “For many investors, this enormous liability will come as an absolute shock and could lead to financial ruin. Many aren’t yet aware that this might happen to them.”
He said several companies had recommended Eclipse 35, with investments adding up to £50,000.
The Financial Times reported some of the investors took out “large bank loans” of roughly £790m in order to participate in the scheme, which was launched by Future Capital Partners in 2007.
The scheme used the loans and £50m of investor capital to buy distribution rights to two Disney films, offsetting the interest charged on the loans against income tax. The rights were then leased back from investors by Disney in return for annual payments over 20 years.
HMRC is now treating these annual payments as taxable income, which means investors could face tax bills greater than the tax they initially sought to save, backdated to 2007.
Among the 289 investors in the scheme are Manchester United manager Sir Alex Ferguson, former England manager Sven-Göran Eriksson and several other high profile sports stars and City figures.
Future Capital Partners told the Financial Times that HMRC was challenging “legally structured and commercial investments” because of the current economic environment.