Another blow for UK film makers


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Earlier this week, the tax tribunal struck down a claim by the members of the film investment partnership, Eclipse 365, to some £117 million worth of tax relief from their investment in the Disney films, Enchanted and Underdog.

Some 300 wealthy individual members, including the manager of Manchester United, Sir Alex Ferguson, and several well known premiership footballers, invested an average of £175,000 each in the scheme, in each case taking out loans to do so. The money so raised was used to license worldwide rights in the films from Disney for £500 million. The individuals then sought higher rate tax relief on the loans, thereby reducing the tax that they had to pay in the year in question. The individuals would receive their money back over a number of years from Disney’s exploitation of the films, but would, as a result, have the benefit of at least deferring the tax they would have otherwise paid in the year in which they invested until they received those profits in later years. With the large sums involved, this would have a considerable benefit over time for the individuals concerned.

It appears the tribunal did not find a technical fault with the scheme, but rather rejected it by finding that, as a matter of fact, the Eclipse 265 activities did not amount to trading. As a result, the loans provided to the members of Eclipse 365 did not qualify for tax relief. The members of Eclipse 365 have indicated an intention to appeal against the decision.

On first view, it might be difficult to have too much sympathy with extremely wealthy individuals seeking to obtain tax relief on a loan provided to a major studio for two blockbuster films. However, Eclipse 365 is one of many similar film investment vehicles available, and if the Eclipse 365 scheme failed because it did not carry on a trade, so too might any other film scheme.

UK independent film makers find it difficult enough to raise finance, and film investment partnerships set up to defer tax liabilities are one of the few sources of finance still available. Decisions such as this further shake the confidence of investors and the IFAs who advise them, and if schemes like this cease to exist altogether, this would represent yet another blow for an already difficult UK independent film industry.

It is therefore to be hoped that the appeal brought by the members of Eclipse 365 succeeds and that schemes such as theirs are given every encouragement to continue. Otherwise, we will soon be in a position where most UK film makers will be forced to relocate elsewhere in Europe or other territories that offer subsidies and incentives for film investment if they are to continue to make films.

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