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Special Report

Reeling in the profits

Published by Investment Adviser | May 28, 2012

As the Cannes Film Festival comes to a close, directors, producers and actors will no doubt be celebrating their successes.

However, the funding of UK films has not been quite so successful. The latest figures from the British Film Institute show that last year the number of major-budget UK feature films fell from 78 in 2010 to 71 in 2011. The talk in the sector is of filmmakers struggling to raise funds to make independent British films.

There is no doubt that a film can do extremely well if it has a good script, good acting, good production values, a budget that fits the type of film it is, and strikes a chord with distributors or buyers. But for the initial investors, getting that perfect mix is a difficult feat.

In spite of the potential for high returns for some films, investors in it for the money have come to realise that any film investment is a big risk, owing to the many problems can develop from when a film goes into production to when it is finally released and distributed.

In the past decade, private investment in film in the UK has largely been driven by tax-enhanced investments and for many investors the only way to gain exposure to this alternative investment is via an enterprise investment scheme (EIS).

The EIS is designed to help smaller, higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies.

Fund-raising limits for EIS products, which are frequently used by the film industry, were lifted in the last Budget from £2m in any 12-month period to £5m, although the cap had been predicted to be increased to £10m. In April, the EIS annual investment limit for individuals increased to £1m (from the previous £500,000).

Qualifying companies can now have up to 250 employees (instead of the previous 50) and can have assets before investment of £15m (up from £7m) or £16m post-investment (up from £8m).

Alan Roe, founder of Warde Graham, says: “EIS funds fall into two distinct camps: those that wind up after the three years that investments must be held to qualify, known as ‘planned exit EISs’, and those that carry on until investors agree that a wind-up makes commercial sense. As high-risk investments, EISs may only be suitable for wealthier investors as part of a diversified investment portfolio.”

Also beginning in April, the income tax relief an individual can claim on EIS investments increased from 20 per cent to 30 per cent, creating a more attractive proposition for private investors.

Jenny Lowe is features editor at Investment Adviser

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