Since 1997 legislation has been in effect which permits 100% tax relief on the cost of the acquisition of qualifying films. This has resulted in the increased use of sale and leaseback transactions, a means of enabling producers to benefit from the tax relief with a net gain of 5%-10% of the acquisition cost paid by a purchaser.
In using sale and leaseback the producer sells the film to a purchaser with taxable profits sufficient to utilise the tax relief, typically a film partnership of individuals with higher rate tax liability, and leases the film back over fifteen years. Most of the sale price is placed on deposit to secure the repayment installments, with the remainder the producer's net benefit. Copyright and exploitation rights return to the producer. Certain conditions must be met for the purchaser to be able to claim the tax relief, including qualification of the film as British by the producer. Guidelines and formal certification can be obtained from the Department of Media, Culture and Sport.
While the producer is free to use the net benefit as they wish such as repayment of any outstanding production costs, as film income or to fund distribution plans, the benefit is of little use to a producer who is unable to start production due to insufficient funds. Some sale and leaseback organisations now advance funding to producers before production starts if they have certain guarantees that the required conditions will eventually be met.
In order to avoid actions which may result in the film falling outside the conditions required for a sale and leaseback it is advisable to seek professional legal and tax advice both before starting production and during a transaction. During a transaction it is important to ensure that ownership of the film is fully regained and that the transaction does not result in corporation tax liability for the producer.
Here are some companies specialising in sale and leaseback:
Ernst & Young
1 Lambeth Palace Road
Tel +44 (0)20 7951 2000
Future Film Group
25 Noel Street
Tel +44 (0) 20 743 6600
Fax +44 (0) 20 7434 6622
Tel +44 (0) 7000 463985
Contact: Simon Ricketts
Matrix Film Britannia
Matrix Film Britannia
7-8 Saville Row
Tel +44 (0) 20 7292 0800
Fax +44 (0) 20 7292 0801
Contact - Donald Mackinnon 020 7292 0899
Information provided by Netribution