A notable film investment scheme used by celebrities in the UK to lower their tax burden has been derailed following a decision by the UK’s Her Majesty’s Revenue & Customs (HRMC).
A group of celebrities including David Beckham, Mel C, Sacha Baron Cohen, Wayne Rooney, Bob Geldof, Robbie Williams and Gary Lineker lost their appeal to overturn a £700 million tax bill following their investments in Ingenious Film, the production company behind acclaimed films such as Avatar, Die Hard 4.0 and Life of Pi.
The original deal asked approximately 1,400 investors to chip in a minimum of £100 thousand and receive hefty tax breaks on any losses made by the production company, which is eligible to receive tax breaks established to back the country’s film sector.
According to the BBC, HMRC accused Ingenious of seeking “relief on artificial losses from its films,” which in turn meant “the schemes were not legitimate investment opportunities but actually a means of avoiding tax.”
The original decision, as explained by International Adviser, “ruled that investors should only receive tax relief on 30% of their investment, not 100%, resulting in the £700m tax bill.”
A spokesperson for HMRC said, “We are pleased that the tribunal has agreed with us that the vast majority of what was claimed in tax relief by Ingenious investors was simply not due.”
Appeal tribunal judge Charles Hellier said, “We have not found this an easy decision, and are comforted by the fact that others have had similar difficulties with the concept of capital.”
Hellier did ultimately confirm that these investments were not “allowable deductions.”
Most of the celebrities involved in this tax avoidance scheme have said that they were unaware the plan was dubious and that their financial advisors provided them with poor advice.
Ingenious Film Reacts to Court Decision on Tax Avoidance Scheme
Following the decision, Ingenious Film also released a statement, saying, “We strongly disagree with the tribunal's clarification of a technical matter from its summer 2016 ruling. It is wholly unsatisfactory that the tribunal reached this decision with ‘misgivings and reluctance,’” and confirmed that it will appeal this decision.
Following the original decision back in August 2016, Newil Forster, Ingenious’ CEO, said, “The Ingenious investors received no more tax relief than the cash they invested. Furthermore, investors have incurred no legal costs in this fight, all of which have been paid for by Ingenious.”
“We are disappointed that the Tribunal has restricted tax relief on the costs of the films however believe that investors are better off as a result of this judgment than if they had accepted HMRC's offer to settle four years ago, and considerably better off than the position HMRC attempted to argue for some years before the Tribunal which would have seen them receive no tax relief on their investment.”
Forster added, “It is important to note that as well as the restriction on loss relief the Tribunal also ruled that the tax on film income should be restricted, reducing the amount of tax payable by investors. We remain disappointed that the Tribunal decided to award film investors only partial loss relief and to restrict all loss relief for games investors.”
Ingenious’ Tax Avoidance Scheme Decision: An Important One?
Analysts have called this decision an important one and now expect the celebrities involved to either settle their accounts with HMRC or join in on a protracted battled between the UK tax authorities and Ingenious Film.
BDO’s Tax Dispute Resolution partner Dawn Register, for instance, said, “It is clear from terminology used by the judge such as “misgivings and reluctance” that the recent decision against Ingenious is a highly significant one.”
“Investors have a key decision to make; they can admit defeat and look to settle with HMRC, or they can partake in any appeal that Ingenious are likely to be press ahead with,” added Register.