LONDON — Industryites are predicting a downturn in British movie production after the U.K. government confirmed new rules to limit film tax breaks.
By preventing producers from claiming tax relief twice for the same film, decision will make it more expensive for Hollywood studios and local producers to make British movies.
But industryites are relieved that the government has allowed films in production, or with financing, to continue under the old rules, which permitted “double dipping.”
In his pre-budget statement, Chancellor of the Exchequer Gordon Brown also announced a review of the Section 42 tax break for bigger-budget movies.
Review, to be completed by January, is intended to ensure that S42 will continue to attract foreign producers to the U.K. despite the ban on double dipping.
“The government has made clear its commitment to the development of a stable and growing film industry in the U.K.,” said John Woodward, chief exec of the U.K. Film Council. “We need to ensure that … the review of Section 42 results in an incentive that continues to encourage major overseas investment in our film infrastructure.”
Just about every British film over the past couple of years has used double dipping, either under Section 42 or Section 48, which applies to films costing less than $29 million. Producers typically claim tax relief once via a production fund, and later via a sale-and-leaseback deal.
The combined value of these transactions was between 25% and 40% of a film’s budget for S48 movies and 15%-17% for S42 productions. These benefits will now drop by half.
Brown also announced a handful of other technical measures that will restrict the value of sale-and-leaseback deals. It will no longer be possible to get a tax break on financing costs (for example, the cost of arranging a completion bond) on top of production costs. Sale-and-leaseback deals that last more than 15 years, used for some studio productions, are also outlawed.
S48 expires next July, when it will be replaced by a new tax credit scheme intended to deliver a 20% benefit to producers.
The details of that scheme have yet to be hammered out, but the government said it would move quickly to resolve these issues.