Key Post How does Film Relief work?

Brendan Burgess

Brendan Burgess

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I have seen different interpretations of this, so I would welcome clarification from someone who has invested in them.

I thought that it was fairly simple, and this example from Mazars confirms my understanding. There is no date on it, so has the system changed?

|no film|film
Income |€82,800|€82,800
Less relief|0|€50,000
Taxable income|€82,500|€32,800
So if I write out a cheque for €50,000, I will save €20,500 tax. In other words, my investment will cost me €29,500.

When the film is finished, if I get my €50,000 back, I have saved €20,500 in tax. If I get back more, I get a good return on my investment. As long as I get at least €29,500 back, I am ahead.
 
Here is a good example of investing in Vikings

June 2012 equity|€16,800
June 2012 loan|€33,200

So you invest €50,000. You don't get the €16,800 back. But the loan is repaid on your behalf.

Actual cash invested|€16,800
Tax relief|€20,500
Gain|€3,700

In other words

Invested|€50,000
Return|€33,200
Loss on investment|€16,800
Tax relief|€20,500
Net gain|€3,700
 
Brendan Burgess said:
So if I write out a cheque for €50,000, I will save €20,500 tax. In other words, my investment will cost me €29,500.

When the film is finished, if I get my €50,000 back, I have saved €20,500 in tax. If I get back more, I get a good return on my investment. As long as I get at least €29,500 back, I am ahead.
Click to expand...

In general, you don't get the full funds returned and the tax gain is effectively shared between the taxpayer and the production company.
Every film investment I have been involved in has had an 'equity' element to it, with the balance borrowed in your name and repaid to the lender by the prodcution company with no further involvement by the taxpayer. If you have sufficient funds you can provide for the full amount, which means you receive the interest and borrowed element at the end of the loan period (typically 12-18 months).
 
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Brendan Burgess said:
So you invest €50,000. You don't get the €16,800 back. But the loan is repaid on your behalf.
Click to expand...
Per your example, you 'invest' €16.8k, €33.2k is borrowed in your name, you receive a tax credit of €20.5k, all in the same year.

The production company receives €50k and has to pay back €33.2k, plus interest, after 12 months or so.

The State gives away €20.5k but (as theory goes!) the country benefits from the investment in the Irish film industry.
 
Thanks Rob

What if I don't need to borrow? Can I just invest the €50k directly?

Are all film schemes the same? You invest €16,800 but get nothing back.

I don't mind giving tax relief to someone who takes a risk. But I don't like these schemes which are effectively a subsidy of the film industry with a tiny tax benefit to the punter.

Brendan
 
Brendan Burgess said:
Thanks Rob

Can I just invest the €50k directly?

Are all film schemes the same?

I don't mind giving tax relief to someone who takes a risk. But I don't like these schemes which are effectively a subsidy of the film industry with a tiny tax benefit to the punter.

Brendan
Click to expand...

You can invest the full €50k yourself. This way, you carry a cashflow losss until the end of the term that the loan would have been for. Then the production company pays you the €33.2k and the interest that it would have paid to the bank. This results in the greatest gain for the taxpayer but obviously has cashflow considerations. The typical interest rates that I've seen on these loan arrangements is in the region of 2.75-3.5%.

I've been an 'investor' several times but always though the same intermediary so I don't know if is different for different schemes. This year, for example, I 'invested' €12.5k in a TV series production (€4,375 of my own funds and a loan, at 3.5%, of €8,125). I will receive €5,125 of a tax credit but won't see the €4,375 ever again and then the production company repays the loan and interest in one year's time.

I highlight 'invest' as it isn't a real investment and only facilitates the claiming of the tax credit (by both the taxpayer and the company).
You're right though Brendan, the main gain is made by the film industry - the State loses €5,125 in my case, I gain €750 and the production company gets low-cost funding (in my name!) and the €4,375 I put in.
 
...and of course this reduces the effective tax rate (even more so for higher earners), which would then get reported as being lower than a lower income individual even though there was a capital 'loss' in order to claim this credit.
 
rob oyle said:
...and of course this reduces the effective tax rate (even more so for higher earners), which would then get reported as being lower than a lower income individual even though there was a capital 'loss' in order to claim this credit.
Click to expand...

This is why I am interested in it.

It's schemes like this which give the impression that high earners pay very little taxes.

Brendan
 
Exactly, the media report a low effective tax rate for high earners but this figure is skewed by not taking into account the 'capital loss' on the film scheme.

Anyway, the film scheme, as it currently stands, ends on 31 December 2014, so it is almost a thing of the past.
 
What happens if the film completely bombs (or there was some kind of fraudulent scheming going on) and all the initial investment is lost? Who has to pay back the loan then?
 
The Borrower ("Investor" in the film / tv series) remains liable for the loan.

Again, this is conveniently forgotten when suggestion is made that facilities like these only benefit the high income earners, they forgot to mention the risk remains that of the same individual.
 
Mr Earl,

I understood that the schemes are set up so that the lending is non-recourse. The return is not dependent on the success of the film.

If this risk is there, then the meagre return does not justify the risk involved.

Brendan
 
I have just read this in the Deloitte newsletter

Income tax
Film relief
Finance Act 2013 introduced some important changes to tax relief for investments in films. The relief will no longer be available to individuals but will instead be available to the film production company by way of a tax credit. However these changes are subject to a Ministerial Order which has not yet been signed. So there is still time to make a film investment and claim tax relief at your marginal rate. The maximum relief that can be claimed in any one tax year is €50,000. You should however be aware that film relief is a specified relief for the high earners income restriction.
 
Brendan,

The loans are full recourse so if you don't get repaid you are liable for the loan. Most of the packaged ones (TV series, big movies productions) are pre-sold and a completion bond in place so, in practice, there is very little that can go wrong. The legalisation requires that there is some commercial risk and this is why they are structured like this.

From memory one almost went bust a good number of years back when the film crew couldn't get down the country on account of the foot and mouth crisis - that is the type of scenario that you are going into with commercial risk. Notwithstanding that it is still a full recourse personal loan.

If you are going down a risky route (i.e. rights not presold or unknown producer) you would be looking at an equity interest in your shareholding. The shares in most film schemes have no right to any share in the profit over a certain point. The above examples indicated the profit.
 
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