Why Invest in Film?

What makes a film investment so special?  Well, a film doesn’t need to be a large success at the box office in order for an investor to receive a return on their investment, that’s the benefit of investing in independent film.  The global marketplace for film and TV programmes is growing rapidly as a result of the increasing amount of platforms and media by which they can be shown.

The benefits of investing in film stretch far beyond the sales of box office tickets, DVD/BIu-Ray sales, Television airings, Video on Demand (VOD) subscriptions and the sale of merchandise all count towards the profit a film makes and can continue to generate a profit for many years after a film’s initial release.

In 2013, the total video entertainment market grew to an estimated £22 billion in consumer spending; 143 million DVDs were sold in the UK and UK consumers made 56 million digital rentals (The British Film Institute Yearbook 2014).

As well as simply making a return on your investment, there are a number of extra benefits which are attached to investing in film such as:

*  Having your name in the credits at the end of the film

*  Get involved with the production of the film, become an extra

*  Meet the cast and crew and visit the film set

*  Attend Red Carpet events including the Film Premiere

*  Attend special events as a VIP, such as The Cannes Film Festival

*  Be the first to sample merchandise

*  Receive generous tax rewards

A film investment allows you to be part of something much bigger than just an investment; a film investment offers you the opportunity to be part of the next big success story and as well as high returns and a life time of earnings investing in the British film industry can also offer you a great deal of tax relief benefits.

In 2012 the extension of the film tax relief for UK filmmakers was announced, creating a range of incentives for film investors when they chose to invest in an ElS/SEIS film investment scheme.

Tax Benefits of Investing in Film

In the UK there are two kinds of high risk businesses which are not listed on the stock exchange.government sponsored investment schemes, offering generous tax benefits to investors, The Enterprise Investment Scheme (EIS) and The Seed Enterprise Investment Scheme (SEIS).  These were set up by the government to make it easier for investors to invest in small

EIS (See also next Tab)

The EIS scheme was introduced by the government in 1994 with a main objective to help small UK companies raise capital from private investors.  Whilst investing in EIS is not without risks, the incentives for investors looking at tax planning opportunities are attractive, these benefits include:

Income Tax Relief

You can claim a tax rebate (30% of the amount in which you have invested) on the income you have paid in the last year or on tax which you still owe in the current tax year.  Relief can be claimed up to a maximum of £1,000,000 invested in such shares, giving a maximum tax reduction in any one year of £300,000 providing you have sufficient Income Tax liability to cover it.

Capital Gains Tax

If the investment is a success and you make a profit on the sale of your shares you will be exempt from Capital Gains Tax on the amount of profit you have made.  If you have any Capital Gains Tax or Inheritance Tax liability to pay in the current or next tax year or if you have paid either of these in the last 2/3 years you can claw back or defer tax I equivalent to 28% of the capital you have invested in the EIS film.

Capital Gains Tax Deferral

The payment of tax on a capital gain can be deferred where the gain is invested in shares of an EIS qualifying company.  The gain can arise from the disposal of any kind of asset, but the investment must be made within the period one year before or three years after the gain arose.  There are no minimum or maximum amounts for deferral.  There is no minimum period for which the shares must be held; the deferred capital gain is brought back into charge whenever the shares are disposed of, or are deemed to have been disposed of under the EIS legislation.

Loss Relief

If your shares are disposed of at a loss, you can elect that the amount of loss, less any Income Tax relief given, can be set against income of the year in which they were disposed of, or any income of the previous year, instead of against any capital gains.

An EIS Investment is Suitable for you if you are Looking to:

*  Take advantage of income Tax Relief

*  Defer a payment of Capital Gains Tax

*  Shelter investments from inheritance Tax

• Harness the potential for significant tax free capital growth in today’s financial markets

• Diversify your existing investment portfolio

• Find a complementary solution to a pension

Who is Eligible to Invest?

Any UK taxpayer is eligible for the tax breaks however, the initial tax relief is limited to the amount of tax you pay.

Where can I sell?

You should be prepared to retain an EIS investment for at least three years or you will lose any initial reliefs claimed.  Once the company in which you are investing has been trading for at least three years after your investment dates, the following options may become available to you to realise your investment at a later date.

• Disposal of your shares to a third party or back to the company

• Management buyout

• Trade sale

"Consider the 2009 hit comedy “The Hangover,”

which cost $35 million to make, and earned a cool $242 million after production costs. 

Other, low profile films that generated a hefty return on investment, ROI, according to Baseline Intelligence, a Los Angeles market research firm which tracks the industry:

• “The Blind Side,” which cost $35 million and earned $221 million at the US box office. 

• “The Blair Witch Project,” which cost just $300,000 to make, and earned an eye-popping $141 million domestically. 

And then, of course, there’s the holy grail of low-budget independent films, “My Big Fat Greek Wedding,” which was produced for $5 million and had gross worldwide revenue of $369 million. (Slideshow: Most Profitable Films.)

“Any failures are magnified, but investors really get to see the upside potential of movies compared to say, real estate,” says James Jaeger, an independent film director and owner of Matrixx Productions. 

Even those that flop in the theater, he notes, still have the potential to break even or produce a profit in the overseas markets, through video-on-demand contracts, DVD rentals and product- licensing deals.

And don’t forget, they’re a non-correlated asset, meaning the success or failure of cinema is not influenced by the ebb and flow of Wall Street, a prized characteristic of alternative investments since they theoretically helps to balance one’s portfolio." CNBC.com 

"The Enterprise Investment Scheme (EIS) fund has raised a total of £200m and has been involved in successful British films including Mr Turner and Testament of Youth, for example." Financial Times.

 

WHY INVEST IN TAO, TANGO & TEMPTATION IN PARTICULAR??

 

 

So if an investor has put in £1m, i.e. 5% of the budget and therefore gets 5% of the net available, i.e. £707,500

PLUS

The original £ 1,000,000 investment he put in, thus receiving a total of:

£ 1,707,500 which only cost him £ 550,000 assuming tax borne of 45%.

Making a profit of £ 1,157,500 representing a return of over 210%

Final result is that the investor receives£ 1,000,000

Plus pro rata Share of the Net£ 707,500

After also having received Tax Refund of£ 450,000

Receiving a Grand Total£ 1,520,750                 

of which the £ 707,500 MAY be liable to Capital Gains Tax – so do consult your tax adviser on this point.

NB The above is only an illustration of what MAY be received using projected figures from a comparable film.