Questions and answers: film tax

Surely the tax rule for film finances haven’t changed again?

Yes, there have been changes and an apparent u-turn, but environmental and technology projects, not just film projects, could also be affected.

In early March, the government announced proposed changes to loss relief rules that would have had an impact on many marketed tax products for the purpose of financing films, and technology and environmental projects. Two proposals were announced, effective 2 March 2007, aimed at all partners not actively involved in a partnership. A week later the Treasury made a u-turn after the film world warned that funding for more than 100 films could be hit.

The proposals will prevent loss relief being given when one of the main reasons for participation in the partnership is to generate a loss that could be set off against other income. Even where the relief is not prevented under the first provision, the loss relief will be restricted to £25,000 per year.

The proposed rules could have meant partners who had already contributed to partnerships before the announcement could receive less loss relief than envisaged. But the government relaxation will apply to films in production before 6 April 2006. These tax breaks are being replaced by tax credits to film companies based on production costs.

The new rules will apply where a partner is a limited partner or does not devote ‘significant’ time (more than 10 hours per week) to the partnership’s trade; will deny tax loss relief where the purpose of investing in the partnership was to get tax relief; and will restrict the relief an individual can claim for losses from such partnerships to £25,000 per year.