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Omega

Background

The Omega Design and Build offering (“Omega”) marketed by Future Capital Partners Ltd (“FCP”), was a series of investments relating to the design, construction and ongoing management of several mixed use developments located in Montenegro that encompassed hotels, conference centres, golf courses and residential complexes.  Returns were derived from income sharing arrangements and a variety of consultancy fees pertaining to the proposed developments and the ongoing origination of similar property ventures.  The investment vehicles utilised the services of several well established strategic partners to ensure the effective running of day to day operations.

Although the success of the investment was contingent on the completion of the projects, at the time of marketing Omega, the developments were all in their infancy.  In the majority of cases not even the land designated for construction had been acquired, nor had any steps been taken towards gaining planning permission.

The promoter implemented downside protection in the form of taxable loss relief arising costs incurred in the initial years of trading.  Investors also had the opportunity to enter into secondary planning arrangements including the sale of their investment to their Self-Invested Personal Pension in return for a cash payment or the transfer of stock to their company to clear directors’ loans balances.

Due to the complexity of the funding mechanisms involved and the focus on the property sector these were considered to be high risk investments and were therefore meant to be marketed solely to sophisticated and / or high net worth investors.

Failure of Scheme

Unfortunately the Omega structure failed.  Due to ongoing issues over third party funding, to date none of the assets have been built or are under construction.  The partnerships were therefore completely reliant on referral fees for the identification of new projects.  Due to a lack of traction these ceased in the tax year 5 April 2016 and were insufficient to cover the initial costs expended in the initial years of trading.

Tax Implications

HMRC had a focus on Omega from the outset due to the aggressive nature of the up-front loss relief and options available to members through secondary planning.

Through the latter part of 2014 and early 2015, HMRC issued the members of Omega with a detailed list of information requirements and opened formal enquiries into the structure.  Based on their investigations, HMRC determined that the flow of funds in the Omega structure were of an artificial and circular nature and came to the conclusion that a) the scheme was not trading (and if it were, not trading with the view of making a profit) and b) the valuation of the stock used for secondary planning could not be accurately determined and accordingly should be written down to £nil.

This has meant members of Omega have not only lost the money they invested but are also subject to considerable tax bills plus penalty interest.

Our internal tax team has significant experience of dealing with the tax affairs of our clients and has built strong relationships with key individuals within the various relevant HMRC units. We can either engage directly with clients and represent their interests on a consultancy basis, or work with clients existing advisors to provide an in-depth and complimentary advisory service.

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