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film production financing

film production financing

As a film production financing company, The Movie Fund is also able to offer investors the GAAP scheme, an Active Film Partnership that enables investors to save tax over a longer period of time, i.e. a sideways loss relief or savings on Capital Gains tax over a 3 year time frame.  However, the investor will need to ensure that they are a proactive part of the business process, i.e. they are actually working on the production in some way.

Using the GAAP scheme, investors are able to invest in more than one production and receive share equity in the production company, enabling them to benefit from productions completed in the future.  The external film partnership, or ‘pool’ of multiple investors, all invest in the production company either in the form of a loan or as an investment, with the risk being shared across the slate of projects, and there are better tax reliefs via film partnership and EIS.

Investing in a slate of projects is more complex than investing in a single film or movie production.  Investment into a ‘production slate’ is more of a long-term investment, although investors will receive more tax reliefs and financial benefits by film partnership . Film Investors are investing into a lower budget film or movie is probably better suited to a smaller investor.


Over the years, most film partnership investments have benefited from certain tax incentives involving British films that have met specific criteria allowing them to write-off some of their production costs, and known as ‘Section 42’ or ‘Section 48’ tax relief.  The inherent tax loss was subsequently shared with the partners, but this tax relief legislation has now been phased out.  In its place, is the GAAP Partnership incentive which is investing in film partnership that combine tax relief with an actual equity investment; the amount of tax relief received will depend on how successful the film becomes upon release.

Partnerships produce accounting statements that are based on GAAP (Generally Accepted Accounting Principles), which differ significantly from the traditional leasing partnerships that investors previously used.


Essentially, an investor not only becomes a partner but also contributes to the film partnership within the tax year; a specific requirement is that the partnership is involved in the production of films that once completed, will be sold.  Money will have been spent on expenditure related to the film, or films, such as production costs, expenses and other associated monies, by the close of an accounting period.  Films that are unfinished are known as ‘work in progress’, whilst films that have been completed but are yet to be released are known as ‘trading stock.  UK GAAP criteria state that trading stock or work in progress must be valued at the lower end of:


It is more than possible that net realisable value will be lower than the film’s cost due to the fact that not all distributable film exploitation will have been negotiated and agreed, and could be as low as 15% of production costs; therefore, there may be a loss of around 85% in the first accounting period of the Partnership.

Partners are able to set their part of the loss against alternative income in accordance with the rules attaining to sideways loss relief, whereby investors can protect unlimited sums of Capital Gains and income both in the current tax year and the preceding one.  The rules also enable relief on income tax for a maximum of three years prior to the investment tax year.

Film partnership investments need upfront monies from an investor in return for a percentage of the full investment; the remainder is supplied as a ‘loan’ which is normally organised by the fund operator, resulting in an initial cash investment of 28% followed by a loan of 72%.  In the following example, let’s assume an investor wishes to invest £100,000 and they are currently paying 40% tax:


Loss certificates are generally provided for investors following the filing of Partnership accounts at the end of the fiscal year.

As the film generates revenue, the investor may use some of this income to repay the loan, usually an amount equating to 55-60%; the investor is then able to keep the balance of revenue.  Once the loan is repaid in full, the Partnership can then receive the net receipts for the remainder of the film’s commercial value, around 20% is average.

Loan Repayment

Because the loan is agreed on the basis of full recourse, i.e. paid in full, investors shoulder the liability of repaying the loan should the film generate insufficient income to repay the loan.  Different film Partnership have different agreements in place for this eventuality,  however, if, within a nine year period, the film has not generated sufficient income (usually to a pre-determined level), some Rights will revert to the Partnership, enabling the Film Partnership to have an opportunity of exploiting the Rights in order to cover any remaining balance of costs from funding the film.  The purchaser, i.e. a major film studio, does have the right to stop the reversal of the film’s Rights, known as ‘Call Option’, but the price of this exercise is usually enough for investors to be able to apply the amounts gained to replay in full the loan.

For more detailed information and examples, contact The Movie Fund.



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