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Don’t get caught offside

We look at the problems players face when investing in complicated tax relief schemes and the fall-out when it all goes wrong.

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Footballers are facing the growing threat of losing huge sums of money after being mis-sold investments by Financial Advisors’ or tax advisers, who are advising clients to invest in complex schemes.

Such schemes see players buy into a range of areas as diverse as timber, property and diamonds to fine wine, films and classic cars – with the single biggest investment by a player coming to £12million. Income and profits from these investments are then pooled and shared between its investors, which often include hedge funds and bankers.

Collective Investment Schemes (CIS) are an example of such scheme but the added risk occurs when the scheme is unregulated (UCIS) by Financial Conduct Authority (FCA). Paying into these schemes can be highly successful, but in other cases they can leave players in financial ruin.

HM Revenue & Customs (HMRC) and the Financial Conduct Authority (FCA) (formerly the Financial Services Authority)are continually looking at the practices of such schemes, making knowing where to invest an increasingly difficult decision to make.

As well as the risks associated with UCIS investments, experience shows that clients who put money into these schemes are often not made fully aware of potential risks relating to tax position and leverage.

Investors may not know that certain funds are not regulated and therefore not covered by the Financial Services Compensation Scheme, with the example of, offshore exchange traded products, UCIS, retail bonds or investments in overseas assets.

UCIS are sometimes not designed to generate significant investment return but are set up to provide tax relief against other earnings, which is why highly paid footballers who find their earnings subject to tax at 50 per cent have historically invested in such schemes.

However we are seeing an increasing number of such schemes sold to investors as legitimate investment products, being shut down by HMRC if they are deemed to be aggressive tax avoidance schemes. Making them a far from sound investment for footballers looking to protect their long-term financial future.

At least 219 footballers have invested in UCIS, and an estimated total of £1 billion had been invested by players in UCIS over the last ten years. Currently there are around 12 Premier League footballers who are pursuing their IFAs over a combined £14 million invested in UCIS.

In some cases, investors can find themselves having to pay back all of the interest and tax relief they have received, in addition to penalties. They are also liable to service the leverage which is usually on a full recourse basis. In some instances, people can end up owing three or five times their original investment, many years afterwards.

According to Xpro, a charity set up to help ex-footballers, some three out of five players declare themselves bankrupt five years after leaving the profession. The Professional Footballers’ Association disputes these figures, suggesting it is closer to 10 or 20 per cent – around one in five.

Despite this, the PFA say they are aware of problems involving ‘high-profile players’ and law firms are gearing up for an increase in the number of high profile players seeking help.

Footballers are earning very large sums of money and its one of the reasons they’ve been targeted. While not all advice football players receive is bad experts are dealing with some very bad cases at the moment where the players had no idea what they were getting into and are left losing large sums of money.

The sale of UCIS is rising again as investors become frustrated with the return on cash based investments consistently falling short of inflation. There are good schemes available but they are only suitable for a very small number of the population. There are stated “categories” of investors and in brief you have to qualify as either a “High Net Worth” or “Sophisticated Investor” to proceed.

These products cannot be marketed to the general public and therefore if anyone is approached without having a history of working with that individual then they should exercise extreme caution.

There are a number of steps you can consider for your protection, these include;

  • Check the regulatory status of the company or individual giving the advice
  • Check that the individual is permitted to promote the investment to you
  • Make sure you understand why that particular investment is suitable for you and where it fits in to your financial plan
  • Make sure you understand the risks and that you are comfortable with them
  • Request a copy of the full due diligence undertaken prior to recommendation so you can judge for yourself
  • Obtain an independent 2nd opinion

Just remember, quite often if its sound too good to be true, it often is!

John Hendrie – Sports Consultant 

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