Exposed: the hundreds of City millionaires in film tax loophole

Wealthy traders and bosses joined football stars in scheme shut down by the taxman
  • @lucytobin

Hundreds of highly paid City bankers and chief executives make up the vast majority of members of a tax avoidance scheme at the centre of a crackdown by the Revenue.

Alain Grisay, chief executive of F&C Asset Management, and Lance Uggla, who runs the financial data firm Markit, are among representatives from big business who are members of the Eclipse 35 film investment partnership loophole, an analysis of the accounts by The Independent has found.

Coverage of Eclipse 35, which was ruled against in a tax tribunal this week, has focused on Manchester United manager Sir Alex Ferguson, former England boss Sven Goran Eriksson and Nobby Solano, the ex-Newcastle United player. Other football stars including Bolton Wanderers' Jussi Jaaskelainen and the former Ireland international Graham Kavanagh are also named as members in the documents.

But it is the vast swathe of City traders, hedge fund managers and private equity advisers which stand out, giving a rare insight into how the financial world's richest players shield their assets from the taxman.

Of the nearly 300 names in the list of members, of those whose identities are traceable, there were 11 managers at Deutsche Bank, 10 former and current Goldman Sachs bankers, eight traders and managers at UBS, and more than 25 hedge fund managers from big firms including Brevan Howard and Walker Crips. Other banks whose staff feature repeatedly include Citibank, Barclays Capital, the broker Icap, JP Morgan and RBS.

Most of the City whizzkids involved appear to be traders or heads of departments likely to be earning hundreds of thousands of pounds a year, such as Stefan Tsonev, a managing director at JP Morgan, Magid Shenouda at Goldman Sachs, and Raymond Key of Deutsche. None was willing or available for comment.

Also appearing is Philippa Rose, sometimes claimed to be the most powerful headhunter in the City. She declined to comment on her investment in the scheme.

But this is just the tip of the iceberg, as many of the members of Eclipse 35 had common names that made their identification impossible.

Accountancy experts said dozens of similar schemes were in operation.

The murkiness of this particular scheme was highlighted this week, when HMRC barred Eclipse 35 from claiming tax relief on a £1bn tie-up with Disney. The relief would have been worth £404,000 for each of the high-net worth individuals involved who invested on average £173,000.

A spokeswoman for UK Uncut said the revelations showed "big businesses and bankers are profiting from everyone else's economic woes by cutting their tax bills."

Elsewhere, the taxman is currently investigating another film partnership, Ingenious Film Partners 2 LLP, in which City bigwigs including Centrica chief executive Sam Laidlaw and Dick Olver, chairman of the defence giant BAE, were investors for at least four years.

Cormac Marum, tax consultant at Harwood Hutton, said: "This kind of scheme is common – people balk at writing out enormous cheques when it's time for tax assessment, and ask themselves, 'what can I do about it?'

The wealthy investors involved in Eclipse 35 come from particular pockets of the country – many stem from Manchester's business community – and particular sectors at banks, which Mr Marum said was down to word-of-mouth recommendations as wellas the wealthy sharing financialadvisers.

How eclipse 35 worked

Barclays lent £790m to the film partnership, and its 289 members then topped out the pot with £50m of their own funds. Just over £500m of that cash was then paid to Disney for rights to its films Enchanted and Underdog. The scheme paid out £293m to Barclays for a decade-worth of interest payments for its original loan, and licensed the rights to the films back to Disney, at a rate of return of £1.02bn for 20 years. Eclipse was then claiming £117m in tax relief from the Revenue, due to its payout to Barclays. That would work out at an average £404,000 tax relief per investor, providing about £1m-worth of tax-free earnings. But this week HMRC acted to block the tax relief before it was paid out.