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View the article online at http://citywire.co.uk/wealth-manager/article/a739598

Celebrities face £1bn tax bill in HMRC crackdown

by Danielle Levy on Mar 10, 2014 at 08:15

Celebrities face £1bn tax bill in HMRC crackdown

A raft of celebrities that include David Beckham and Andrew Lloyd Webber face a potential tax bill of £1 billion in a dispute over an Ingenious film shceme, which HMRC alleges was used as a tax avoidance scheme.

The Revenue is attempting to demand the film scheme investors pay back tax relief received on their investment before a court battle gets underway to determine the legitimacy of the schemes, the Sunday Times has reported. 

The celebrities each paid a minimum £100,000 to invest in the Ingenious Film Partners 2 LLP, a film scheme that qualified for tax breaks under rules that were aimed at stimulating the British film industry under the previous government. The scheme helped to fund films such as Life of Pi, Avatar and Girl With a Pearl Earring. However, HMRC now argues that these schemes were not legitimate investment opportunities but rather used to avoid tax.

Ingenious, formerly led by Patrick McKenna, has retailiated by sending a letter to its clients warning them of HMRC's 'draconian' plans to force them to pay up before their case comes to court. The approach forms part of the Revenue's attempt to clear a backlog of 65,000 individuals and businesses suspected of using tax avoidance schemes.

The move also forms part of a long-running dispute with Ingenious Media Investments. Ingenious denies the schemes were designed to avoid tax and intends to fight the case at a tax tribunal, scheduled for November.

The Sunday Times reported that under current legislation the schemes’ investors would be able to keep the tax relief until litigation or an investigation was completed.

However, the paper said that HMRC now wants the forthcoming Finance Bill to force firms and individuals under suspicion of benefiting from a tax avoidance scheme to repay the disputed money.

2 comments so far. Why not have your say?

Anonymous 1 needed this 'off the record'

Mar 10, 2014 at 08:36

Let's not forget these were not structured under the rules relating to British films, but seeking to take advantage of accounting principles governing trading losses.

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David S Lesperance

Mar 13, 2014 at 11:17

Let's take a moment to contemplate how this might drive future

behaviour. Since they are the most complex and interesting, let's look

at the Beckhams.

Up to this point they appear to have exhibited some very clever tax

planning chops.

Example 1) US taxation: The Beckhams acquired resident alien status

(ie green card) but never applied for US citizenship after the 5 year

naturalization period. Also by co-incidence or design they left the US

after 6 years which would be before they were deemed "covered

expatriates" under the expatriation tax regime. Of course this just

may be co-incidence and they may not have formally relinquished their

resident alien status;

Example 2) French taxation: When David signed with Paris St. Germaine,

he pledged to donate his entire French source salary to charity. This

would of course give him a large charitable deduction. He also said he

would NOT become tax resident in France with its supertax on

world-wide income. Along with reducing the French tax bite and

providing the immense satisfaction of directing the use of these

euros, it also enhanced his like-ability significantly. Not a bad

thing to have occur when the vast majority of his wealth is generated,

outside of the French tax net, through the mercantile exploitation of

"Brand Beckham" through endorsements;

Example 3) UK taxation: Leaving aside personal feelings and patriotism

for a moment, both Beckhams have clearly increased their individual

and combined brands by promoting their "Britishness". Since they were

both born and raised in the UK (ie. UK domiciled) they could not take

advantage of the quite attractive "resident but not domiciled"

remittance tax regime so beloved by foreigners living in the UK (eg.

Chelsea owner Roman Abramovich). When they left the US, they decided

to return to the UK tax game. Despite his signing with PSG, they had

also thereby carefully avoided French tax residency with its supertax

liability. This meant that the Beckhams were logically attracted to

ways of "playing the UK tax game better", by doing things like

investing in this tax avoidance scheme.

If this attempt at avoidance fails, it will not matter to their

wallets whether it was because the UK moved the goalposts or the

vehicle was defective from the outset. Therefore they may want to

re-explore the option of leaving the UK tax game.

It appears that another brand beneficiary of "Britishness", Sir

Richard Branson has managed to do just that. Sir Richard very

carefully framed his move from the UK tax net as a lifestyle choice

rather than tax move, which did not thereby hurt his personal brand.

He noted that he would still pay UK tax because he had UK source

income. This is true but no one seemed to catch on that he was no

longer going to be paying UK tax on his non-UK holdings (which are

substantial) or UK estate tax upon his death. Of course, once the

klieg lights of publicity are no longer on him, he could quietly

reduce his UK source income and reduce his UK tax bite even further.

Whether they have had excellent tax results as a result of following

good advice or just been lucky with the consequences of their life

choices, it appears that the Beckhams' luck has run out with this

scheme. If they want to continue to enjoy their lower tax burden as

David's brand revenue diminishes and Victoria's ascends, then a

careful and clever exit from the UK tax net would be their next

logical move.

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