UK Case Law

In a supplementary decision to the main Ingenious Games LLP and others v HMRC case (which related to a tax-motivated film partnership scheme and in which HMRC has already won the principal argument), the First Tier Tribunal has held, albeit reluctantly, that the expenditure incurred by the investors when acquiring the rights in respect of the relevant films was capital in nature and so could not be written off against the income arising to the investors from the scheme. As a result, the investors in the scheme did not only fail to obtain the tax benefits that they expected, but will now be left with taxable income which is not sheltered by the amortisation of the cost of the film rights.

This decision highlights again the potential pitfalls associated with schemes designed to give rise to tax benefits and that the downside of entering into such schemes might be worse than initially considered.