Investments  

Advisers warned over Icebreaker claims

The partner at DWF Fishburns issued the warning after a recent ruling characteried Icebreaker investments as “tax avoidance schemes” and denied tax relief for the majority of the sums invested.

Ms Quiney said: “This ruling is a result of progressively intensive scrutiny by HMRC of claims for loss relief tied to investments in the creative industries. Many investors are now expecting large tax bills with interest in some cases of more than 30 per cent.”

In July 2014, HMRC expects to receive new powers that will force taxpayers to settle disputes, pay tax in advance of settlement and may allow it to take tax directly from taxpayer bank accounts.

Article continues after advert

Ms Quiney said: “Unless IFAs and accountants who advised on the investments were careful to point out the risks, they are clearly in danger of claims from clients who have made actual losses rather than tax losses and need to find funds quickly to settle mounting tax demands.”

She added that prevention of the use of “loan monies” to inflate taxable losses, unless those monies are also at genuine risk of loss, will make tax avoidance schemes riskier and less palatable as they cannot produce a guaranteed positive return.

Public disapproval of tax avoidance schemes together with the fact that HMRC is now winning 80 per cent of cases means that the number of schemes on offer has fallen by 75 per cent in a year, she added.

BACKROUND

The Icebreaker schemes were typical tax avoidance schemes in which investors invested a mix of personal and loan monies into entertainment projects. As the costs of such projects are incurred upfront, they would make a loss in the first year, allowing tax relief to be claimed on the full amount invested, which outweighed the personal money invested. The loan monies would be repaid from a guaranteed deposit some years after investment, creating a sure-fire win. The court held that tax relief could not be claimed on the loan element, as this was a sham or, in some cases, a proportion of the personal investment, meaning that investors made genuine losses greater than the tax reliefs obtained.