The recent announcement by HMRC to launch consultation on the promotion and selling of ‘tax avoidance' schemes might bring scant comfort to investors who have previously been advised to invest in Unregulated Collective Investment Schemes (UCIS) and the like. In the last two weeks we have spoken to five accountants, and all expressed concerns about such schemes. Having previously sought ‘professional' investment advice, many of their clients have ploughed money into these so-called ‘tax beneficial' investments without fully understanding how they operate. In reality most UCIS were high-risk tax mitigation or deferral mechanisms; as a result the accountants concerned are now left to manage huge client tax bills.
These investors are not alone in this predicament. In its 2010 report into the sale and promotion of UCIS, the FSA found that 71% of cases reviewed failed to show suitability of advice, 70% of schemes were mis-sold and 96% demonstrated non-compliance with Financial Promotion rules. There's no doubt that if investors were made fully aware of the risks and consequences of investing in UCIS, many would not have invested at all and wouldn't be facing financial ruin now.
COMMON SCHEMES - SALE AND LEASEBACK
To decide the best course of action, it is important to understand how such schemes operate. There are various UCIS structures but perhaps the most common (and least aggressive) was film "sale and leaseback" which offered Government-incentivised tax benefits to encourage UK investment into films, with immediate tax relief which was effectively repaid over 15 years. Other more esoteric investments have covered niche areas such as wine, technology, property and carbon credits. The returns on these types of schemes can be significant, but they were very high-risk investments which usually required a large proportion of leverage (which investors were generally told they would never be asked to repay personally; but in some cases they have been pursued by the lenders).
Generally investors rely on IFAs to recommend suitable investments, but it seems that the advice surrounding UCIS products was not always reliable or independent. The Financial Ombudsman Service reported that many advisers demonstrated, at best, a lack of proper attention to investors' needs, and at worst, deliberate deceit to help facilitate their high commissions from UCIS.
OPTIONS TO PRESERVE CLIENTS ASSETS
A number of options remain for accountants looking to preserve their clients' assets. Rebus Investment Solutions was set up in 2009 to act as the "investor champion" helping investors reclaim their money or otherwise achieve recourse when mis-sold or negligently advised. Our team of specialists includes legal, accountancy and regulatory skills, product developers and highly experienced advisers. Rebus currently represents over 470 investors, managing claims totalling over £450m, and we have recovered over £5m worth of awards for our clients this year alone.
Over 30% of the Rebus current case load are client referrals from accountants. While investors may have been misled by unscrupulous advisers, Rebus provides access to a number of options for accountants left trying to pick up the pieces.
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