New Film Finance Scheme Attracts Investors

by Robert Lee, Tax-News.com, London

01 November 2006

The UK's new film finance tax credit scheme is attracting investors, with a new hedge fund planning to raise GBP150m to finance films in expectation that they will make enhanced profits due to the tax credits.

The Sunday Times reports that Simon Fawcett, chief executive of Aramid Capital Partners, and former finance director of Pathé, the film distributor, is launching the Aramid Entertainment Fund with three other film-finance experts: Tim Levy of the UK’s Future Films, David Molner of the Los Angeles firm Screen Capital, and Thomas Adamek of Louisiana-based Stonehenge Capital.

The old tax relief scheme for British film production, known as Section 48, was replaced on 1 April 2006, with State Aid clearance by the European Commission. The new relief delivers small budget films a minimum benefit worth 20% of total qualifying production costs, with large budget films being able to claim a benefit worth at least 16% of total qualifying production costs, representing tax credits of 100% and 80% respectively.

The government claims that the new system of tax relief will provide "better targeted and more effective support" to film makers. The new relief is targeted exclusively on film production companies and will not be available to investment partnerships and other intermediaries, opening the opportunity for funds to intermediate the financing.

Ivan Dunleavy, chief executive of Pinewood Shepperton studios, says that he expects more big budget productions to come to Britain in the years ahead after a period when uncertainty surrounding the industry's tax regime saw production companies using more foreign studios.

"With the passing of the legislation to implement the new UK film tax relief and clarity over UK film fiscal policy, we expect to see a return to a more normal film production environment by the end of 2006 with larger film productions once again committing to filming in the UK for the future," he stated.

Under the new tax breaks productions must satisfy the Treasury that they are British through a points system. Films must score a minimum of 16 points out of a possible 42 points to qualify for the tax scheme. Using a studio such as Pinewood gives films nine points towards their total.

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