05/03/2007

The UK film industry suffered a tremendous setback last Friday when the goverment announced the elimination of tax funds that have been vital to the sucess of numerous British studios and production outfits, as well as film financing companies such as Ingenious, Scion, Future and Prescience.

Based on a mechanism of “sideways loss relief”, these GAAP funds allowed rich individuals to write off high-risk investments as losses against their income tax. This subsequent reduction in tax payments was a key element behind the recent renaissance of the British film industry, also luring US productions to shoot in the UK through the lucrative tax incentives.

Martin Churchill, editor of the Tax Efficient Review and the Producer's Guide to UK Tax Funds, called the government’s move a catastrophic one for the film industry as “there are very few films around that haven't got some tax money”.

The hardest hit will be independent producers, who have come to count on the cash flow that the GAAP funds provided – currently estimated at £2bn – for a substantial part of their budgets. According to Scion head Jeff Abberley, it will become “virtually impossible to fund an independent film out of the U.K."

Nor is it certain that films set to shoot in the coming weeks – e.g., Michael Winterbottom’s Genova and Julian Jarrold’s Brideshead Revisited (30% of whose budgets were to come from GAAP funds) – will be able to go into production as planned.

To make matters worse, the new change in tax rules also blocks sale-and-leaseback financing, a staple financial model behind over 50 films made in the UK last year, including Casino Royale [+see also:
trailer
film profile] and Hannibal Rising [+see also:
trailer
film profile].

According to a UK Film Council spokesperson, the government’s move is aimed at curtailing tax evasion rather than preventing people from making films. The film industry is not, in fact, the only one to be affected, as other sectors hard hit by the change include environment research and property development.