An artificial tax avoidance scheme involving medical research relief has been held ineffective by the First-tier Tribunal.

It ruled against a scheme involving the Brain Disorders Research Limited Partnership and Neil Hockin, one of its partners, in which the scheme's users attempted to claim £29m in tax relief. The investors claimed to have spent £122m on research, when in fact only £7m reached the genuine research company.

The aim of the scheme was to enable investors to make large claims to interest relief on their borrowings. Large capital allowances claims were also made. However, the tribunal found that as the partnership was not trading, no tax relief was due.

The partnership paid £122m to a Jersey-registered company, Numology Ltd, to fund research into depression and Attention Deficit Hyperactivity Disorder (ADHD). The partnership then claimed capital allowances on this full amount.

Numology Ltd then subcontracted the entire research project to an Australian biotechnology company for £7m. The other monies, apart from those used to pay promoter fees, were used to cover the loan and interest.

The tribunal agreed with HMRC that certain elements in the documents were a sham. It also went further in stating that there was a possible element of sham in relation to fees paid. 

Jennie Granger, HMRC Director General, Enforcement and Compliance, said: "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.

“This particular scheme was doubly offensive as it risks bringing fundraising for medical research into disrepute."

Click here to view the tribunal's decision.