Investors in controversial film partnership schemes are preparing negligence claims against at least 45 IFAs ahead of possible tax demands and penalties being issued by HM Revenue & Customs.
The schemes have hit the headlines after a tax tribunal ruled in April that film partnership Eclipse 35 is an “aggressive” tax avoidance scheme, resulting in 289 investors facing a tax liability in excess of the total £117m tax they sought to avoid.
Eclipse 35 was conceived by Future Capital Partners and began operating in April 2007. Investors bought film distribution rights as a means of offsetting income tax, with the rights leased back from investors in return for an annual payment spread over 20 years.
HMRC is sending out tax demands to UK-based Eclipse partners, backdated to 2007. Investors may face a bill for the tax due, the interest and an additional penalty. Claim management firm Rebus Investment Solutions is preparing negligence claims against 45 advisers for recommending Eclipse film partnerships.
Rebus says claims will initally be made to the Financial Ombudsman Service if rejected by IFAs. It may also look to bring claims as part of a lawsuit. The FOS says it will assess claims according to the fact-find and whether the consumer was an experienced enough investor.
Rebus managing director Alastair McEwan says: “Advisers failed in their regulatory obligations when promoting these kinds of products and failed to satisfy the eligibility criteria. The fact remains that the obligations around promoting these products rests entirely with advisers.”
Rebus is not bringing claims against Future Capital Partners.
Future Capital Partners declined to comment on how many advisers it worked with or the levels of commission paid, understood to be over 5 per cent in certain instances.
Tax advice given by advisers is not covered by the FSCS if the IFA goes bust. HMRC would not normally be able to penalise advisers for offering film partnerships as avoidance schemes are not illegal.
Howden director of retail Neil Pointon says film partnerships have been on the radar of professional indemnity insurers for some time. He says: “This latest development will make it more difficult to obtain cover for these activities going forward.”
Equilibrium Asset Management investment manager Mike Deverell, who did not recommend the schemes, says: “These schemes can be a double whammy of losing money on the investment while still owing tax. It is not just negligence claims advisers face but also reputational risk. It is a minefield.”