Former Manchester United manager Sir Alex Ferguson and former England manager Sven-Goran Eriksson are among 289 wealthy individuals poised to lose out following a legal loophole, which allowed them to claim substantial tax relief, was closed by HMRC.
This tax avoidance revelation has caused much embarrassment for self-proclaimed socialist Ferguson – who is worth an estimated £34 million.
Ferguson became a partner in a group – Future Capital Partners – that purchased the rights to two Hollywood films, Enchanted and Underdog, based on the assumption that he could claim tax relief on borrowing costs.
The £1bn scheme – “Eclipse 35” – was established in 2006 and was quite an extensive process that involved the group buying circulation rights in the two movies funded mainly by money loaned by Barclays Bank, and then relicensing the films back to Disney.
The group’s founder Tim Levy strenuously defended the scheme in 2011: “Tax was important, there is no question about that, but I genuinely believe that these investors were motivated significantly by the nature of the films that were being offered.”
But now, HMRC have challenge the scheme and Ferguson may potentially have to pay back seven times more than what he initially invested.
Ferguson has since refused to comment on the exact amount he has invested in the scheme.
David Gauke, incumbent Exchequer Secretary to the Treasury, commented: “The government wants to support and encourage genuine business investment through the tax system, which is why we have tax reliefs.
“However, we will not stand for abuse of those reliefs and HMRC will come down hard on anyone who tries. In this case, anyone who used the scheme to try to avoid tax will have to pay tax on the income from the scheme, meaning they are worse off than if they’d never used it. The message is clear – if it looks too good to be true, it probably is.”
This is the very reason why we continually advise people not to get involved in these schemes. If the scheme is shut down by HMRC, you will pay a hefty price.
Ask yourself one question: is it really worth it in the long run? The answer is no!