If you have a significantly large income tax bill it may be worth seeking the advice of a tax consultant who specialises in film partnerships, an excellent investment vehicle that can be used to shelter your income for up to three years back…
Film partnerships were introduced in 1997 with the primary aim of helping the UK film industry, they provide a means of sheltering both income and capital gains from tax. Basically a Film Partnership is a sale and leaseback on the distribution rights of UK films that have already been produced.
A film partnership requires a 15-year commitment and the arrangements tend to quite complex. Up to 19 investors invest money into a general partnership set up to buy film rights. A minimum investment normally between ₤50,000 and ₤150,000 is required; this sum can be arranged with 10-22% coming directly from the investor and the rest being loaned by a bank.
The partnership will then buy the rights to one or more films that meet the full UK government criteria to qualify as a British film. The partnership will then lease the distribution right back to the producer on a long term lease basis, up to 15 years. The producer will pay an annual rental to the partnership that is equal to the capital and interest payments on the partnership loan. Lease payments would normally increase by 5% per annum.
In capital terms the investment remains neutral, the primary benefit being that the investment qualifies for tax relief in the first year because the partnership are able to write off 100% of the acquisition costs of the film. For example with £100,000 there would be a tax rebate of £40,000 and the initial outlay may have been around $15-20,000.
The Inland Revenue will continue to pay the tax rebate over the entire period of the loan, because the capital element of the lease payments will be the taxable income of the partnership.
There were changes in the 2002 Finance Act that restricted the tax relief levels, investment can now only be made against British qualifying films that have a budgets that do not exceed ₤15 million, nevertheless for many people this remains a very effective method of income tax liability reduction.
Tax Consultants Guide2004
The tax and financial consultants guide
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