The UK Inland Revenue is to bring forward legislation in the next budget to veto film partnership sc...
The UK Inland Revenue is to bring forward legislation in the next budget to veto film partnership schemes that use tax relief to create artificial losses.
Starting on 10 February, the legislation effectively spells the end of four film partnership schemes, including Teather & Greenwood"s Scene, which aimed to begin production before the end of the tax year.
Unlike sale-and-leaseback and production film schemes, T&G"s Scene, along with schemes from First Choice, Inside Track and Premier Pictures, adopts generally accepted accounting principles (GAAP) structures, which allows it to create claims for losses greater than the amount originally invested.
Like Scene, the Premier Pictures scheme has not yet launched, but the First Choice and Inside Track plan, which between them have raised some £100m, will both be closed as a result, with most of their assets being returned to investors.
Using GAAP, schemes were able to write down their losses in the first year to close to zero net realisable value, then using a profit and loss-sharing arrangement, the bulk of the loss would be transferred from the corporate members of the scheme to individual investors.
This effectively allowed the tax rebate on the loss incurred to be greater than the amount originally invested by the scheme"s individual investors, in some instances providing a profit of up to a 21% in the first year.
Dawn Primarolo, paymaster general at the Inland Revenue, said: "Some schemes manipulate partnership sharing arrangements to allocate losses that are greater than an individual"s economic contribution to achieve a tax advantage.
"Others create large losses initially to set against income but seek to avoid tax on later income by leaving the partnership before the majority of that income arises."
Martin Churchill, editor of Tax Efficient Review, said: "There are just two types of film partnerships allowable to investors, sale-and-leaseback and production schemes."
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