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A number of years ago I invested money in a film partnership scheme. The investment was sold to me on the basis of offering good returns and attractive tax breaks. I was assured that this was approved by HM Revenue & Customs and I was not made aware of any significant risks.
I’ve since received a letter from HMRC stating that my claim for tax relief has been subject to an inquiry and that a separate division is conducting a criminal inquiry into the scheme which I entered. I’ve also been asked to resolve a significant tax liability, as well as large interest and penalty charges.
I’m dealing with my accountant and will, of course, co-operate with HMRC, but I was completely in the dark about there being anything untoward about this scheme and strongly believe that the full risks were not made clear to me. What are my options? Do I have a case for mis-selling?
Jacky Osman, head of technical services at Rebus Investment Solutions, says it is most likely that your partnership was set up as an unregulated collective investment scheme (Ucis). These collectives are, as the title suggests, not regulated, meaning that the schemes are not recognised by the Financial Services Authority (FSA). However, the activity of promoting them is subject to regulation.
Based on what we know so far, it would be difficult to confirm whether you were mis-sold this scheme. There are a number of factors to consider. Firstly, you need to consider whether the firm complied with its regulatory obligations when it presented the scheme to you, and how it determined whether this scheme was suitable for you.
As to the representations the firm made, it is also necessary to look at how balanced these were, and if they gave you a fair account of the risks that you faced. The most obvious example of this is where schemes relied on “full recourse borrowing”, meaning that you are personally liable if the loan is not repaid as part of the investment. In our experience, many clients never really understood that this was a personal debt to them.
If you have a case for mis-selling or misrepresentation (as above), and provided that your complaint falls within the time limits (usually six years from the date of the promotion), you may make a formal complaint to the company that gave you the advice.
If the advising firm disagrees with your complaint, you may in certain circumstances take your complaint to the Financial Services Ombudsman (FOS). However, they can only help if the firm is regulated by the FSA and is still solvent.
Should the FOS decide that your case is one it can deal with, it will consider all of the evidence and all of the arguments put forward by both you and the advising firm before making a decision. Once an ombudsman has made a final decision it is binding on both parties.
If the FOS were to find in your favour it would aim to put you back in the financial position you would have been had you not invested. For a Ucis type of investment FOS will usually make a “directional” award. This is a recommendation of the steps the advising firm needs to take to put things right. A recommendation would take into account not only the amount invested, but the interest on loans taken to make the investment, and any liabilities you may have in respect of the partnership or even a recommendation to assign your interest in the partnership to the firm.
The FOS can only make a “monetary” award of up to £150,000, plus interest and costs. It cannot compel the firm to pay in excess of this sum even though its recommendation may imply it would be fair to do so.
If the advising firm you are complaining about no longer exists or is unable to meet a claim against it, you may apply to the Financial Services Compensation Scheme (FSCS), which is the UK’s statutory fund of last resort for customers of financial services firms. Awards made in respect of investment complaints are restricted to £50,000.
Should your complaint fall outside the FSA’s orbit, you may have recourse to the courts. But you will need to prove that the firm acted in an unlawful manner. This route should be carefully considered in terms of the redress you may win, against the costs of litigation.
This advice is specific to the facts in the questions posed. Neither the FT nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies
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