A trip to meet John Hurt on the Portuguese set of his final film is not a typical perk for the average investor, says Gill Wadsworth. Yet this was precisely what one investor enjoyed as a thank you for supporting That Good Night, Hurt’s last film before his death last year.
This article was published in January 2018.
For other investors in UK-based film projects, the benefits include behind-the-scenes tours, private screenings with the stars, tickets to premieres and even the chance to appear in the film as an extra and see their name in the credits.
Red Rock Entertainment
, a film finance company that supports UK productions, offers its investors these kinds of experiences in addition to the potential financial return on investment.
Gary Collins, Red Rock managing director, says: “Investing in film isn’t just about money. If you love film, it’s also about meeting the stars and being part of the glitz and glamour.”
That said, investing in film has the potential to offer much more than a night on the red carpet. The most important is tax efficiency.
Investing in film via an HMRC-approved enterprise investment scheme (EIS) or (SEIS) offers several tax breaks since the government wants to encourage private support for small businesses.
Enterprise Investment Scheme (EIS)
The first relief for EIS investors is on income tax which offers tax relief at the rate of 30%. For example, if you paid £9,000 in tax during the current or previous tax year, you could invest £30,000 through EIS and claim £9,000 back from HMRC either against tax already paid or tax that would be due to be paid, depending on your personal circumstances. Providing the shares are held for a minimum of three years, there would be no tax on any profits you may make from the sale of the shares.
The second is CGT deferral. For example, you purchase a property for £225k and sell it at a later date for £325k, showing a taxable profit of £100k. The £100k profit would be subject to 28% Capital Gains Tax of £28k. If you invested the £100k profit into an EIS film scheme, you could defer the £28k for three years and also claim £30k in tax relief as explained above.
At the end of the three years (or until you sell the shares), the CGT is applied to that current tax year, but the film investor could keep reinvesting until death when it would be written off, effectively meaning it never gets paid.
This brings us to the next relief, inheritance tax. Investment in EIS is not subject to the 40% tax rate applied to the inheritable estate. This means that providing you hold the shares for a minimum period of two years (the minimum period needed to qualify for the relief), there will be no tax on the inheritance of the shares.
Finally, there is loss relief at your current tax rate should you lose money on any shares that are sold after the three years; for example, if you are a 45% taxpayer and invested £10k into a film EIS scheme, and then the film was a total flop and there were no returns whatsoever, you would be able to claim 45% on any loss, i.e. 45% of the £7k lost — you would have had £3k already in tax relief. So in this example, your maximum loss would be £3,850; this loss would be reduced further if you had any capital gains relief to defer.
Seed Enterprise Investment Scheme (SEIS)
EIS is not the only avenue for film investment. HMRC-approved ‘Seed Enterprise Investment Scheme’ (SEIS) is also available, which offers 50% income tax relief instead of the 30% on EIS and allows you to write off 50% of any Capital Gains owed instead of deferring it as you do with EIS. All the other benefits, including tax-free profits, no inheritance tax after two years and loss relief, are the same as EIS.
Mr Collins argues that, thanks to the amount of tax relief, the risk of significant loss on a film investment through SEIS or EIS is reduced. For example, on a £10,000 investment in an SEIS which makes no return, the income tax relief would be £5,000, leaving at risk capital of £5,000, on which the investor receives loss relief of 45% (£2,250). This leaves a total loss on £10,000 of £2,750.
Investments in SEIS and EIS are considered high-risk, and potential investors should seek support from an independent financial adviser. For those looking for a tax-efficient investment that offers the potential to meet some stars and see your name in lights, film production could be worth a look.
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