Tax experts at Irwin Mitchell Private Wealth are warning wealthy investors to be wary of investment schemes that promise to reduce tax bills by putting their money into unusual investments such as films. The firm says that in some instances, investors could both lose their investment and be faced with large tax bills.
The warning follows the conviction at Birmingham Crown Court of four men who were found guilty of operating a fraudulent investment scheme that was used to claim GBP100 million of tax repayments.
Investors included aristocrats, celebrities and football managers who are reported to have invested GBP264 million. There is no suggestion they knew it was a fraud.
The scheme promised to use the money to make more than 300 films and take advantage of tax breaks for the film industry to reduce the tax bill for investors. Investors were promised that for every GBP100,000 invested, higher-rate taxpayers would receive GBP130,000 in tax repayments from HM Revenue and Customs (HMRC).
However, the organisers falsely inflated expenses to increase the scheme’s losses and claim about GBP100m in tax repayments. HMRC described the scheme as a scam and the organisers were charged with conspiracy to cheat the public revenue. They are due to be sentenced on 24th June.
Andrew Watters, tax partner at Irwin Mitchell Private Wealth, says: “This case highlights how important it is for people to take high-quality advice to avoid schemes that promise to take advantage of tax loopholes. Wealthy individuals need to be cautious about investing in schemes that promise high returns by investing in unusual investments such as films.
“Tax authorities are taking a much harder line against schemes where they believe the claimed reduction in tax is achieved by artificially creating losses. The problem for investors is that these schemes are complicated and difficult to understand. If a scheme promises significant tax advantages with little risk, alarm bells should ring and specialist independent advice should be sought.
“What makes it worse for investors is that the HMRC can demand payment of tax from investors, even if they have lost money. Those investors who have lost money through such investments and now face big tax bills may be able to claim for damages but that process can face long delays as the tax litigation makes its way through the courts.”
