UK Government Shuts Down Film Tax Relief Avoidance Scheme

by Robert Lee, Tax-News.com, London

14 March 2006

The British government has announced that new legislation is being introduced into the 2006 Finance Bill to shut down a complex tax avoidance scheme exploiting the tax relief intended for film production in the UK.

Paymaster General, Dawn Primarolo, announced on Friday that once enacted the new legislation will become effective from March 10, 2006.

The scheme in question combines a film sale and leaseback partnership with a separate but parallel investment partnership. It provides individuals using the scheme with a tax advantage greater than the amount invested whilst avoiding any taxable income at a later date.

"This is a particularly aggressive attempt to exploit the current tax reliefs intended to support the British film industry. As we made clear in December's Pre-Budget Report, the Government will take swift and appropriate action to counter such abuses of the tax system. We will continue to monitor the use of the existing tax reliefs as long as they are in place," explained Primarolo.

The current tax relief scheme for British film production is due to be replaced on 1 April 2006, subject to State Aid clearance by the European Commission.

The new relief will deliver to small budget films a minimum benefit worth 20% of total qualifying production costs, and large budget films will be able to claim a benefit worth at least 16% of total qualifying production costs.

The government claims that the new system of tax relief will provide "better targeted and more effective support" to film makers.

The new relief will be targeted exclusively on film production companies and will not be available to investment partnerships and other intermediaries.

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