HMRC has won a court battle to stop a film investment partnership called Eclipse Film Partners No 35 LLP from gaining £117m in tax relief.
The partnership, which included wealthy football managers among its members, wanted to claim tax relief on a complicated £1bn deal with Disney.
Manchester United manager Sir Alex Ferguson and former England manager Sven-Göran Eriksson were members of the partnership alongside hedge fund managers, bankers and chief executives.
The partnership had taken out a large loan to acquire distribution rights to certain films and then leased them back to the same film producer, within a short period, for a payment spread over 20 years.
The members of the partnership then claimed interest relief on the loans taken out to fund the purchase of the distribution rights.
However, when it came to court a First Tier Tribunal ruled that the partnership was not carrying on a trade and as a result the members of the partnership could not claim tax relief for the interest on money borrowed to finance the acquisition of the rights.
This matches a first tier tribunal decision from November that found two film partnerships were not undertaken on a commercial basis and therefore not entitled to relief.
Had Eclipse 35 been successful at tribunal each of the investment partnership’s 289 members would have been in line for around £400,000 in tax relief on a personal investment of £173,000.
While this is seen as a victory against “aggressive” avoidance, the decision is subject to appeal in higher tribunals.
An HMRC spokesperson told AccountingWEB: "Nearly a billion pounds was made available to HMRC to tackle avoidance, evasion and fraud. We are focussing on closing down aggressive avoidance schemes which deny the UK vital finding by getting around the will of parliament.”
David Ingall, consultant, JWPCreers said: “There is no doubt that these artificial leveraged schemes are the unacceptable face of tax planning. The problem for other taxpayers is that they create an atmosphere in which genuine claims are treated with extreme suspicion by HMRC.
“They stretch the envelop of reality incredibly and there is little sympathy for those who have lost. Unfortunately it gives HMRC the chance to give the impression that all tax planning, however innocuous is evil.”
Cormac Marum, a consultant to Harwood Hutton, added: “Individuals in partnerships which are not trading have never been able to claim tax relief in respect of losses made against other income. That would appear to be why the Eclipse 35 losses have been denied. In recent years these rules have been extended so no tax relief has been available for tax-generated losses.
“This does not mean that partners who borrow funds to finance trading which proves unsuccessful cannot get tax relief for the losses they unfortunately suffer.”
In February officials from HMRC carried out several raids after looking into allegations that City bankers had taken part in a tax fraud that exploited a film finance loophole.
Around 16 people were thought to have been arrested in the Revenue’s clampdown.