Omega is part of the Montenegro project to develop a 5-star hotel in Budva, Montenegro and later a golf course and accommodation in Tivat, Montenegro.
Future Capital Partners (FCP) promoted an investment opportunity in the project, Omega. The investment was sold as an opportunity to take part in a “risk-managed and tax efficient environment", with the potential to generate 2-3 times return and an option to borrow 84% of the investment.
The minimum investment was £50,000, and each investor had the option to borrow up to 84% of this from an entity controlled by FCP. Partnerships were set up (Omega Design and Build Partners No XX LLP (LLP)), and each investor became a member. The majority of the funds invested were used to purchase shares in Omega No XX Developments Limited (Company).
Most investors sold its shares in the Company to its self-invested personal pensions (SIPP). The SIPP paid out funds to the investor for the purchase of the shares. These funds were treated as an authorised payment from the pension fund and were not taxable. Alternatively, investors sold its shares to its private company and extracted the funds tax-free. In most cases, the shares were sold to the SIPP or private company for in excess of £1 per share.
In relation to the LLP, it spent the majority of its capital by way of an irrevocable payment to Boka Property Holdings Services (Jersey) Limited to secure contracts to provide construction and consultancy services in exchange for project fees and a share of the revenue once the project was built. As far as we are aware, the development has not started and is not likely to ever do so.
HMRC has concluded its investigation. It found that the LLP did not carry on a business with a view to profit and is unable to claim relief for the losses arising from the LLP.
Further, HMRC has concluded that the shares in the Company were worth only £1. Any cash taken out of the SIPP above £1 is an unauthorised withdrawal and is subject to tax.
What next for the investors?
It is open to investors to appeal HMRC’s decision, and we understand that FCP is currently seeking to put together a fund of circa £1m - £1.5m for this purpose.
In addition to an appeal, investors can also seek recovery from their advisor for any loss suffered as a result of entering into the investment.
This can be explored/ commenced while the appeal is in process. In most cases, we recommend exploring this option sooner rather than later. It is likely that a number of claims will become time barred during the appeal process.
For more information on tax avoidance schemes, visit our web page.