EIS relief & film investment
Feature films qualify for tax benefits under EIS. If you invest money in a film production company you can claim 30% of your investment back as income tax relief under EIS. Plus you may be named in the credits.
Film industry is profitable and growing
The UK film market is the third largest in the world. In 2015 the market was worth £4.1 billion, up from £3.8 billion in 2014.
Since 2006 we have seen a steady growth in film revenues year on year (with the exception of 2014). This is partly due to SEIS and EIS tax reliefs.
In 2015, the latest available data, there were 6,805 film production companies, 2,660 film, video and TV post-production companies, 420 film distribution companies and 230 film exhibition companies. If you choose a good script to invest into the potential for tax efficient investment is enormous.
EIS in film – how it works
Film production and most film post-production activities qualify for EIS tax relief purposes.
In most cases, investing in a film company is simple:
- After securing films rights in a script, the filmmaker will set up a production company;
- Founders who own more than 30% of the company will not be eligible for EIS;
- The film does not have to be shot in the UK to benefit from EIS;
- Investors put money in the company to produce the film;
- EIS investors receive 30% EIS income tax relief on subscription for shares;
- The company can claim other reliefs such as the film relief;
- There is no requirement that 70% of SEIS funds is spent before EIS funds are received;
- The film is released and royalties are collected by the company;
- Investors receive dividends;
- The company is liquidated or sold;
- If investors held the shares in the company for at least 3 years there is no capital gains tax to pay.
Benefits of EIS investment in a film
EIS is beneficial for the film investor. EIS includes:
- Income tax relief of 30% subject to investment maximum of £1,000,000;
- Income tax relief can be used against the current tax year and previous tax year;
- Capital gains tax relief:
- Reinvestment relief;
- Disposal relief – if the shares are sold ;
- Loss relief – when the investment goes bad the investor can get up to 45% income tax relief (less any income tax relief already received).
How to qualify for EIS when investing in film
The Company will usually use its best endeavours to preserve the EIS qualifying status. However, in order to benefit from EIS an investor will need to meet the following criteria to qualify:
- You must invest in the Company for genuine commercial reasons;
- You must not subscribe for the shares in the Company as a part of arrangement in which another person subscribes for shares in your company, or a company owned by a person connected with you;
- There must be no linked loans between you and the Company;
- You may not hold 30% or more shares in the Company at any point;
- You may not be an employee of the Company unless you have been a director under SEIS and you remuneration is reasonable; and
- You may not receive any preference on the liquidation of the Company.
What happens when I invest in a film production company under EIS?
You may claim relief against income tax for 30% of funds used to subscribe for new ordinary shares. There is an annual investment limit of £100,000. Depending on how much you invest and what is your income tax liability for the current and previous tax year, you will be able to claim 30% income tax relief of the sum invested.
Can I get dividends from my EIS film investment?
The dividends received by an investor in relation to his EIS shares are taxed in the same way as any other dividends. That means that you will not pay tax on the first £5,000 of dividends you receive in the tax year. Above this allowance you will pay dividend tax depending on which tax bracket you are in at the following rates:
- Basic rate – 7.5%
- Higher rate – 32.5%
- Additional rate – 38.1%
What happens on liquidation of a film production company?
If the Company is liquidated you will not lose your income tax relief which you received on subscription. You will be able to claim loss relief if you suffer a loss and held the shares for at least three years.
Examples of successful use of SEIS and EIS in film production
Many recent blockbusters have been funded through SEIS and EIS, including Brooklyn, Carol, Mr Turner and Testament of Youth. At Gannons Solicitors we have advised on a range of film projects including BBC dramas, a vampire horror feature film and a range of independent productions.
Some film production funds deliver annual investment returns over 10%. This is much higher than the current return rate on a savings account.