The tax man’s campaign to claw back £1 billion from money ploughed into loss making film projects highlights some common factors among investors.
Around 1,300 high profile investors, including footballers, celebrities and politicians allegedly invested huge amounts in film production partnerships that failed.
They then offset the losses against other income to save tax.
Unfortunately, HM Revenue & Customs (HMRC) branded these as tax evasion schemes and demanded the saved tax should be paid.
Many of the stars feel they have been shabbily treated and some have gambled on winning a tax tribunal hearing next month.
Many have settled upfront for 40% of the tax they owe – the rest are waiting for the dice to fall.
Winners and losers
If they win the tribunal, they pay nothing. If they lose, some are said to be facing tax bills of £2.5 million or more and possible bankruptcy.
But this sad episode does say a lot about human character and money.
Most of these taxpayers are in a predicament because they trusted someone else to manage financial affairs they did not understand.
The lesson for any investor is to understand the risk of any investment and to pull out if the risk is uncertain.
No doubt many followed the crowd…so and so’s doing it so why don’t I?
The question to ask here is if someone else is gaining from an investment, has the scheme run for more than seven years. If so, it’s likely HMRC know about it and it works. If not, the odds are they will catch up sooner or later.
Greed and scams
Greed is another factor. Making a lot of money for little outlay rarely happens in life, so the adage is always if a deal seems too good to be true, then it is.
Another consideration is why are people letting you in on a moneymaking opportunity and taking advantage of it themselves?
It’s easy to go through the list of boiler room scams, pension liberation con men, land banking fraudsters and carbon credit crooks.
The common link is they are all supposedly selling their secrets for an investor’s advantage. If they were that good at making money, they should not need to live off their commissions and fees.
As with all investments, caveat emptor or buyer be aware applies – and before succumbing to greed and the belief you can hide unnoticed in the crowd, ca4rry out some serious due diligence.