June 25, 2012Stars face big bill as tax plan backfires

Wealthy investors including Sir Alex Ferguson, Sven-Göran Eriksson and a host of sports stars and City figures could be liable for huge individual tax bills after an attempt to reduce their liabilities backfired.

The 289 investors in Eclipse 35, a film partnership ruled to be an "aggressive" tax avoidance scheme by a tax tribunal in April, could end up paying several times more than the total of £117m tax they sought to avoid as the Revenue & Customs examines the large bank loans they took on to participate in the scheme.

The Revenue’s latest crackdown resonates in a week in which the tax affairs of celebrities including Jimmy Carr, the comedian, and Gary Barlow, the Take That singer, have been highlighted by an investigation by the Times newspaper, causing a political furore.
David Cameron this week criticised some aggressive tax avoidance schemes as "morally wrong".
The investors put £50m of their own capital into the scheme, conceived by Future Capital Partners, and borrowed £790m from Barclays Bank to buy the film distribution rights to two Disney films, offsetting the interest charged against income tax. Disney agreed to lease the rights back from investors in return for an annual payment spread over 20 years.
However, the Revenue told the Financial Times this week that it was treating the "sub-licensing" payments as income and liable for tax, meaning investors stand to receive tax bills far greater than the income tax they originally tried to avoid.
The Revenue confirmed that it was in the process of sending tax demands to UK-based Eclipse partners, levied on the millions of pounds of income earned and backdated to 2007 when it began operating.
"They will be receiving tax bills for the income from the partnership, backdated. It is as if the scheme never existed," it said. One law firm said some investors could face "financial ruin".
At least three investors have already contacted lawyers to see if they can sue financial advisers for negligence over Eclipse 35. Future Capital Partners, which conceived the scheme, has filed an appeal, but said it was up to investors to decide whether to pursue it.
Thousands of participants in similar film investments could also be affected, as the Revenue assesses them in the wake of its victory.

Several firms of wealth advisers marketed the scheme, and clients paid them fees of up to £50,000 a time,