Investors of the scheme, called Brain Disorders Research Limited Partnership, claimed to have spent £122m ($190m, €173m) on research, when in fact only £7m reached the genuine research company.
The research firm, including partner Neil Hockin, took out two 15-year loans of £53m each and invested these, together with £13m of their own money, into Brain Disorders Research.
The partnership paid £122m to Jersey-registered company, Numology, which then subcontracted the entire research project to an Australian biotechnology company for £7m. The rest of the money was used to cover the two loans and the interest.
The scheme was designed to give investors relief for the interest on their borrowings and to enable them to make large capital allowance claims.
However, the tribunal said no tax relief was due because the partnership was not trading.
The tribunal therefore agreed with HMRC that certain elements in the documents were “a sham”. It also said there was a possible element of sham in relation to the payment of fees.
Doubly offensive
“This win sends a clear message to those who still try to market and use tax avoidance schemes – HMRC will continue to challenge them, in the courts if necessary,” said Jennie Granger, HMRC director general, enforcement and compliance.
“This particular scheme was doubly offensive as it risks bringing fundraising for medical research into disrepute.”
