Red Rock Entertainment offer tax efficient investments and a touch of glamour

A trip to meet John Hurt on the Portuguese set of his final film; not a typical perk for the average investment.

Yet this was exactly what one investor enjoyed as a thank you for supporting That Good Night, Hurt’s last film before his death last year.

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. 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.

Tax Efficiency – 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 3 years there is also no tax on any profits you may make from the sale of the shares

A Fitting Legacy

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 3 years and also claim £30k in tax relief as explained above.

At the end of the 3 years (or until you sell the shares) the CGT is applied to that current tax year, but the 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 (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 3 years, for example, if you are a 45% tax payer and invested £10k into a film EIS scheme, and then the film was a total flop and there was 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.

The Artist’s Eye

Tax Efficiency – Seed Enterprise Investment Scheme (SEIS)

EIS is not the only avenue into 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 2 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 £5000, leaving at risk capital of £5000 on which the investor receives loss relief of 45% (£2250). This leave a total loss on a £10,000 of £2750.

Investment in SEIS and EIS are considered high risk and potential investors should seek support from an independent financial adviser. For those that are 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.

Gill Wadsworth