U.K. plans new tax breaks
Gov't to create new scheme to aid filmmakers
The news was greeted with surprise and delight by the U.K. film community, which wasn't expecting a firm signal from the government until its annual budget in March.
But in his pre-budget report published Wednesday, Chancellor of the Exchequer Gordon Brown promised the tax support would be extended in some form, with details to be announced in March.
"Building on the tax measures introduced by the government in 1997, and extended in 2001, to promote investment in British films, budget 2004 will announce the results of discussions with the industry and others to extend support through the tax system beyond 2005," the report stated.
"In doing so, the government will consider the scope for further simplification and ensure that the extended support is targeted effectively," Brown said in the report.
"We are extremely pleased that the chancellor has taken the opportunity to highlight the government's continued commitment to supporting film in the U.K.," U.K. Film Council chairman Alan Parker said. "Film plays an important cultural and economic role, and the chancellor's comments will be widely welcomed throughout the U.K. film industry."
The Labor government introduced the so-called Section 48 tax relief when it was elected in 1997, allowing production costs for British movies budgeted under $26 million to be written off against tax in the year incurred.
This gave rise to convoluted "sale-and-leaseback" schemes, constructed to take advantage of the tax break, which are used to contribute around 10%-14% of the budget of every British movie.
Section 48 was due to expire in 2002, but was extended to 2005. It has contributed to a substantial boom in British film production and attracted significant inward investment, but also has been subject to abuses, notably by broadcasters using it to finance TV shows. That loophole was closed last year.
The level of abuse and financial inefficiency in the tax break long ago convinced the government not to renew Section 48. But concerted industry lobbying has persuaded the chancellor not to abandon tax relief entirely, but rather to invent a better system.
The most likely replacement is a version of Luxembourg's transferable tax credit. It also has been suggested that the new system will give specific incentives to distributors to invest in production.
