Another HMRC Victory Against Film Tax Schemes

HMRC has recorded a victory in court over the investors in two film partnership schemes that were promoted by Future Capital Partners.

Following an appeal by investors in the film partnership schemes, the court upheld a ruling handed down in 2011 which concluded that the film schemes were not carrying out trade, and therefore investors were not eligible to claim income tax relief.

The film investment schemes promoted by Future Capital Partners in this case were Proteus 1 and Samarkand 3. The decision follows an earlier case relating to Eclipse Film Partners No35 LLP film investment scheme.

In order for investors in the film partnership schemes to offset income tax liabilities against their investment, the investment scheme must be carrying out a trade. In this case, the Proteus 1 and Samarkand 3 schemes operated a model by which film rights were bought and sub-licenced.

Film tax credit schemes were introduced by Labour as an initiative to encourage investment in the UK film industry. Investors in the partnership schemes were enticed by the potential of being able to offset income tax against their investment, as many of the schemes made huge losses.

With HMRC continuing its efforts to reduce the UK tax deficit, film investment schemes were identified as a sophisticated model used for tax avoidance, predominantly by the wealthy. Notable celebrities have been identified as having used such tax avoidance schemes.

This latest decision strengthens the precedent that if a film investment scheme was not trading, then the investors are not eligible for tax relief. As such, HMRC may now turn its attention to the investors in order to recover the unpaid tax and interest.

If you have invested in a film partnership scheme and would like to discuss your position in complete confidence with one of our tax investigations professionals, you can call us on 0113 387 5670. Alternatively, fill out an Enquiry Form and a member of our team will contact you directly.