17/03/2005

The UK Chancellor of the Exchequer Gordon Brown announced yesterday afternoon in his pre-election Budget for 2005 that the current tax relief for low-budget films Section 48* would be extended until at least 31 March 2006, and that the other relief used for large budget films, Section 42 would be replaced next year with new tax credits.
The UK government’s decision to extend the Section 48 tax relief after the July 2005 expiry date is good news for the local film industry which has suffered from lower levels of investments (£808M in 2004 against £1.157 billion in 2003) and number of films made in 2004 (132 against 173 in 2003) following the UK Treasury’s toughening up on tax issues.

Stressing its commitment to the principles and terms of the proposed new tax incentive that would replace both sections 42 and 48, the Treasury also said it had decided to extend the current relief for low budget films “to give more time for formal consultation with the film industry on draft legislation”, and “to ensure that tax reliefs for low and large budget film production are provided on a coherent and consistent basis”.

Commenting on Gordon Brown’s announcement, Tim Willis, director of film at the UK producers’ association PACT said: “The last year has been very tough for producers and of course we are relieved that the immediate uncertainty surrounding Section 48 has been addressed. We look forward to the consultation exercice on the new permanent tax credit and we remain hopeful that it will provide the promised 20% benefit to producers”. PACT also said it hoped that the extension of Section 48 would enable British fims currently in suspense to be financed and completed, but it still predicted that the level of UK film production in 2005 would fall significantly compared to 2004.

*Section 48 launched in 1997 introduces 100% first year relief for expenditure on the production or acquisition of qualifying British films with a total production budget of less than £15M. Uk films that were made with Section 48 include Calendar Girls, Bend It Like Beckham and Gosford Park.
Section 42 offers less tax relief and investors get the tax back over a three-year period, but it has no restriction on a film’s budget. Section 42 was created in 1992 to stimulate UK based production of big budget movies such as the Bond and Harry Potter series.