HMRC ramps up tax bills over film partnerships

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A total of 780 rich and famous investors who paid £2.2bn into film investment schemes are facing huge tax bills of up to 20 times the amount they invested.

The Times reports investors include former Manchester United manager Sir Alex Ferguson, former England managers Sven Goran-Eriksson and Glen Hoddle, and former Sainsbury’s chairman Sir Peter Davis.

HM Revenue & Customs has told tax advisers it plans to issue payment demands that outstrips the initial money invested. For example, an investor placing £200,000 in one scheme is expected to face a tax bill of between £2m and £4m.

In April the Supreme Court ruled Eclipse 35, one of the biggest film partnerships, was a tax avoidance scheme. The judgment has been used to pursue demands for investors in 38 similar film partnerships.

Demands will be sent out in the next two months and investors will have 90 days to pay. Eclipse is expected to seek a judicial review of HMRC’s decision to issue payment demands in this way.

Though the Eclipse schemes, investors would pay into the scheme and also take out a loan. The scheme buys the rights to films, then relicenses rights back to the studio.

Investors would then “pre-pay” 10 years’ worth of interest on the loan, generating a loss which can offset for tax purposes on other income.

One investor told the newspaper: “I am paying back four times the capital I invested. And I still have to pay tax on the income in future years. A fellow investor in my scheme, this is going to bankrupt him.

“I started to mitigate. This individual didn’t. How many suicides do HMRC need to go through?”

Law firm Herbert Smith Freehills partner Stephen Gale, a member of two Eclipse schemes, took his life in 2014.

HMRC will be taxing future earnings from the scheme despite these payments going directly to loan repayments.

A spokesman says: “The majority of schemes simply don’t work.”