Closure of film tax loophole proves that tide is turning in favour of HMRC

HMRC has won a court battle to stop a film investment partnership from claiming £117 million in tax relief.

The tax authority’s victory over Eclipse Partners No. 35 LLP proves that HMRC is beginning to win more tax investigations cases than it is losing.

Eclipse 35, which counted wealthy football managers including Sir Alex Ferguson and Sven-Goren Eriksson among its members, wanted to claim tax relief on a complicated £1 billion deal with Disney.

The deal involved taking out a large loan to acquire the distribution rights to certain films, then leasing them back to the same film producer, within a short period, for a payment spread over 20 years.

The partnership then tried to claim tax relief on the interest of the loans taken out to fund the purchase of the distribution rights.

However the First Tier Tribunal declared in favour of HMRC, ruling that Eclipse 35 was not carrying on a trade and thus members could not claim tax back on the loan.

Had Eclipse been successful, members of the partnership could have been in line for around £400,000 in tax relief on a personal investment of £173,000.

The ruling in court mirrors a First Tier Tribunal from November that found two film partnerships were not undertaken on a commercial basis and therefore not entitled to relief.

An HMRC spokesman said: “Nearly a billion pounds was made available to HMRC to tackle avoidance, evasion and fraud.

“We are focussing on closing down aggressive tax avoidance schemes which deny the UK vital funding by getting around the will of parliament.”