The Upper Tax Tribunal has backed its lower bench over the illegitimacy of the film investment Eclipse 35, which was marketed as a tax efficient investment solution.
The move means investors, including retired Manchester United manager Sir Alex Ferguson and former England manager Sven-Goran Eriksson, could be left with a hefty tax bill, while lawyers may look to claim against some of the advisers who offered the schemes.
Legislation announced in the Autumn Statement could lead to HMRC demanding the tax in question before further appeals are resolved.
The Eclipse 35 limited liability partnership has 287 investors who hoped to take advantage of a combined £117m in tax relief on a £1bn investment arrangement with Disney. It was first used in 2006-07.
The scheme used a circular flow of funds to create an upfront interest payment on which investors could claim tax relief.
It was funded by a £790m loan by Barclays to Eclipse 35 with private investors adding £50m of their own funds.
However, in early 2012 HMRC won a challenge of Eclipse 35’s tax-efficient status in the First Tier Tax Tribunal.
Eclipse 35 appealed to the upper tier tribunal, but it was dismissed in a ruling released today.
HMRC says the firm is one of 31 related avoidance partnerships with over £600 million tax at risk.
Exchequer Secretary David Gauke says the Government supports and encourages “genuine business investment” through its tax system with tax reliefs.
“However, we will not stand for abuse of those reliefs and HMRC will come down hard on anyone who tries,” he says.
“In this case, anyone who used the scheme to try to avoid tax will have to pay tax on the income from the scheme, meaning they are worse off than if they’d never used it. The message is clear – if it looks too good to be true, it probably is,” he adds.
Rebus Investment Solutions,which helps investors claim compensation for mis-sold complex investments, says it has been working with investors.
Head of client relations Martin Taylor says Rebus represents investors with about £100m in the fund and most of their recourse would be through regulatory channels rather than the courts.
“A number of IFAs that have advised on this particular structure have since gone insolvent so the maximum redress for those investors is £50,000 under the Financial Services Compensation Scheme,” he says.