gordon brown's plans to eliminate tax relief on sale and leaseback film partnerships will cost investors millions
Changes governing the taxation of sale and leaseback film partnership schemes announced in the Budget could cost investors millions in lost tax relief.
The Chancellor has eliminated the tax relief on sale and leaseback film partnership schemes, which were aimed at financing TV productions, although this is to be retained on productions intended for cinematic release.
Implementation of the decision is to be discussed with the industry and will be denied to schemes where production was completed before 1 January 2002 but as of 17 April had not received its tax relief qualifying certificate from the Department of Culture, Media and Sport (DCMS). Ian Pugh, a research analyst at alternative investment specialists Allenbridge, said: 'The financing of TV products, which I estimate accounted for up to 60% of all sale and leaseback schemes in the past financial year, is effectively outlawed.'
This will lead, he said, to sale and leaseback film partnerships becoming more expensive.
Pugh said that investors in partnership productions completed before 1 January, which have not yet received their tax qualifying certificate, will effectively lose the relief promised on an investment they have already made. Film sale and leaseback schemes are used as a way to defer the payment of a capital gain over the period of the partnership, typically 15 years.
Investors buy the rights to a film or, in this case, a TV production from the producers, and as well as putting in their own money equivalent to 18p in the pound, also take out a loan to cover the rest of the purchase price. In return, the Government grants the investor tax relief on the entire amount invested up-front. Announcements in the Budget also impact on venture capital trusts (VCTs).
The decision to reduce the maximum rate of business assets taper relief from four years to two years will affect the ability of VCT managers to raise assets, said Bill Nixon, manager of the Aberdeen Growth Opportunities VCT.
He said: 'This decision will have a huge impact on future VCT fund raisings.
'Tax incentives are one of the main drivers, and in particular an individual's ability to defer their CGT liability to a later date.
The changes will mean that in many cases their liability will be lower ' consequently their incentive to invest in a VCT and defer payment of the gain is reduced.'
The Government is also to introduce legislation safeguarding the tax relief eligibility of investors in VCTs proposing to merge, clarifying an issue which had concerned many product providers.
• Venture capital trusts (VCTs) invest in Aim and Ofex-quoted companies and unquoted companies.
• They offer tax relief on amounts of up to £100,000.
• Investors do not have to pay any capital gains tax (CGT) on profits made from the sale of their VCT shares.
• Dividends will be paid to VCT shareholders free of income tax.
• Investors who subscribe for shares in a VCT can claim income tax relief at the rate of 20% (on amounts of up to £100,000) as long as they hold the shares for three years or more.
• Investors can defer CGT arising on the disposal of any asset provided they are reinvested in a VCT, within one year before or one year after the initial disposal.
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