Back in the 00’s the Government introduced Film Schemes as a form of investment; high earners could use them as a tax efficient investment whilst the British Film industry would get a boost. These Schemes became a popular way of avoiding tax however it soon became apparent to officials that these schemes had turned into aggressive tax avoidance.
In 2007 the Eclipse Film Partnership 35 purchased the rights to two American Disney films; Enchanted and Underdog. The partnership then subleased the rights onto another part of Disney on the same day thereby generating the tax relief.
In 2009, the HMRC refused to allow the tax relief and sought to investigate the scheme. The First Tier of the Tax Tribunal upheld the HMRC’s position that the Film Schemes were not in fact trading therefore could not be exempt from tax. Eclipse appealed to the Upper Tribunal who upheld the original decision.
The Court of Appeal in 2015 upheld their decision that in fact these schemes were not carrying on a trade and therefore they were not entitled to tax relief on any income or losses. The Partnership took one last shot and applied for permission to appeal in the Supreme Court. The matter was listed for 1.5 days on 13 and 14 April 2016 however it only took one day for the Supreme Court to dismiss the application and their final decision was made on 13 April.
This decision could have serious financial implications for the hundreds of investors involved in these schemes. These investments were very popular with premier league footballers and managers as well as high earners in the City; the likes of Alex Ferguson and Sven Goran Eriksson invested in the Film enterprises on the advice of IFAs. Many of these advisers are now insolvent and investors have had to resort to the Financial Ombudsman and the FCSA to recover some of their monies; unfortunately for the investors the compensation is capped at £75k when in reality their liabilities are likely to be substantially more.
Geoff Scott, chief executive of Xpro, a charity set up to help ex professional footballers, confirmed that his charity was dealing with a number of retired footballers who have been served with bills for hundreds of thousands of pounds. Geoff also confirmed that the majority of these cases have ended up in divorce!
Investors are now waiting to be contact by the HMRC with follower notices which will set out the extent of their liabilities. For some members of the schemes the sum owed could be life changing; not only are they liable for the tax relief, but also the surcharges and penalties for avoiding the tax in the first place. The reality is that many of these investors could end up filing for bankruptcy, the outcome is bleak for all involved.
If your relationship has been affected by involvement in a Film Scheme and you are looking for some expert family advice, then please contact our Family Team direct on 0151 375 9968.