UK's HM Revenue & Customs is offering a new settlement to current and former partners in the Eclipse film partnership investment schemes. The schemes were promoted to defer individuals' income tax payments by creating a stream of interest payments on loans that they had entered into in order to make capital contributions to the Eclipse partnerships.
They claimed relief on these interest payments, expecting the loans to be repaid later from income arising from the investments, which were used to buy film rights. About GBP2 billion was invested in the partnerships between 2006 and 2008, but in 2015 HMRC obtained a judgment in the England and Wales Court of Appeal (EWCA) to the effect that at least one of these partnerships – Eclipse Film Partners No. 35 LLP (Eclipse No.35) – was not really trading.
HMRC then took the view that members of all the Eclipse partnerships were not entitled to any interest relief on these loans. Moreover, HMRC also argued that the partners were further liable to a so-called 'dry tax' charge on notional income that would be used by partners to repay their borrowings, even if they never actually received it. The result was that the partners were much worse off than if they had never entered into the arrangements.
Many of the Eclipse investors are now suing the scheme promoters and the banks that issued the associated loans, to recover these losses. Meanwhile, HMRC has tried to use follower notices to impose the 2015 judgment on other Eclipse partnerships, with mixed success. In November 2019, the EWCA quashed follower notices and accelerated payment notices issued to Alasdair Locke regarding his participation in the Eclipse Film Partners No. 10 LLP (Eclipse No.10) film rights investment partnership, ruling that HMRC's victory against Eclipse No.35 did not count as a prior judicial decision against Eclipse No. 10. The UK Supreme Court later confirmed this decision and refused HMRC permission to appeal against it, so that HMRC would have to seek further court decisions against the other Eclipse partnerships to impose its tax assessments on the members.
The settlement now offered by HMRC to Eclipse members will remove a considerable weight from the investors' minds, says Geraint Jones TEP of tax advisors BKL. Those who give up their claims to interest relief and pay back any relief already claimed will not be called on to pay 'dry tax' that HMRC says is owed on the income. Some GBP1.6 billion of this tax is thought to be at stake, and Jones expects most investors in the Eclipse partnerships will want to take up the settlement opportunity.
The settlement opportunity will recover all the tax avoided and avoid further litigation. HMRC will be writing to individual partners with details of this offer, which will remain open to each individual for six months after being contacted by HMRC. Payment arrangements can be tailored to individuals' circumstances if appropriate.
'This settlement opportunity will doubtless come as a welcome relief for those who have faced many years of uncertainty (and potential financial ruin) relating to their participation in the Eclipse transactions', commented Adam Craggs and Constantine Christofi of advisors RPC.
News Source：【STEP 2021/09/09】
