Big banks including HSBC, Barclays and Bank of Ireland could face a bill of up to £11billion for their roles in tax avoidance schemes used by wealthy celebrities, The Mail on Sunday can reveal.
Lawyers and tax experts last night said they were building a war chest to sue a number of banks for creating the schemes or offering loans to investors who took part.
Newport Tax Management and CFS Capital, which are managing a class action against the advisers behind the Eclipse 35 film scheme, claim HSBC, Barclays and Bank of Ireland – along with other major banks – gave an air of respectability to more than a dozen schemes that were set up to avoid tax.
Breaks: Investors included actress Sienna Miller
Under the arrangements, investors including actress Sienna Miller and sports personalities such as former England foootball star Wayne Rooney were told they were putting money into films, green energy projects or property in exchange for tax breaks. But the schemes were later deemed illegal and those who invested have been chased for unpaid tax by Revenue & Customs.
Some investors claim they were mis-sold and have sued the accountants who drew up the schemes. Now experts say the banks involved face the equivalent of a PPI-style scandal for the wealthy.
In its annual report last month, HSBC admitted that the impact of legal claims against it, if successful, could be ‘significant’.
Nick Wood, of Newport Tax Management, said that if banks are forced to pay compensation and legal costs, they could face a total bill of £11billion.
‘You could have borrowed £2million from a mainstream bank [to invest in these schemes] based on a one-page assets and liabilities statement – almost at the drop of a hat,’ he said. ‘These clients were persuaded to invest in something that appeared bona fide and afterwards were made to feel like pariahs.’
Targets: David and Victoria Beckham (left) and football manager Sven-Goran Eriksson
Rob Rutter, of CFS Capital, added: ‘It’s obvious that tax avoidance schemes were mis-sold on an industrial scale.’ Most of the schemes were sold to investors when City risk-taking was rife before the financial crisis. Some were genuine investments, but unscrupulous firms also created artificial structures to take advantage of tax breaks.
Often, investors’ money was never put into projects as advertised. One prominent example was Eclipse, which was created by a banker in HSBC’s UK Private Bank division. It offered 780 investors the chance to avoid tax by investing in a series of Disney films, including the second in the Pirates Of The Caribbean franchise.
Former England football manager Sven-Goran Eriksson and former Manchester United boss Sir Alex Ferguson are among those who were advised to invest.
Lawyers say investors were won over with promises of red-carpet events, film memorabilia and a cut of any profits. But in reality, the money was never invested in the films.
The scheme was deemed illegal by the Supreme Court in 2016, allowing for the Revenue to claw back the tax avoided, including that on the loans that went into the schemes.
This has led to investors, including pension funds, nursing heavy losses and being told to repay up to 20 times their original investments. Last week, The Mail on Sunday revealed Disney could become a target of legal action for its role.
Former Manchester United boss Sir Alex Ferguson was also advised to invest
According to Newport and CFS Capital, there are ten to 15 schemes similar to Eclipse alongside dozens of smaller ones, affecting thousands of investors. They say banks were instrumental in selling them.
Representatives for 248 investors in the Ingenious Media schemes have launched a lawsuit against HSBC, claiming it conspired to defraud them.
And last month, lawyers at Edwin Coe, which has been appointed by Newport, sent ‘letters before action’ to HSBC, Barclays and Bank of Ireland. The banks have 12 weeks to respond before formal cases are filed with the courts.
David Greene, head of litigation at Edwin Coe, said: ‘Prior to the crash, many banks were chasing the dragon of profit by any means, fuelled by commission-driven salesmen. Banks, however, only had an eye on their bottom line and there was widespread marketing of schemes that really did not fall far short of fraud. After the crash and fresh regulations, banks sought to clean up their act but had many skeletons in the cupboard that are only now being addressed.’
All three banks declined to comment. HSBC said in its latest annual report: ‘These matters are at very early stages. It is possible that additional actions or investigations will be initiated against [HSBC Private Bank UK] as a result of its historical involvement in the provision of certain film finance-related services. Based on the facts currently known, it is not practicable to predict the resolution of these matters, including the timing or possible aggregate impact, which could be significant.’
Other schemes are also in the spotlight, with Newport taking an interest in the Elysian Fuels partnerships, which were meant to lead to investments in a renewable refinery and technical centre in Grimsby and a bioethanol plant in the US.
Another is the Omega fund, which promised to invest in hotels, golf courses and homes in Montenegro. But it was later found that in most cases, the land had not even been bought by the fund’s creators. The Revenue clamped down on the scheme in 2015.
Other celebrity investors include David and Victoria Beckham, Robbie Williams and Gary Lineker. It is not known if any of them are involved in the current lawsuits.