Sale & Leaseback

Since 1997 legislation has been in effect which permits 100% tax relief on the cost of the acquisition of qualifying films. This has resulted in the increased use of sale and leaseback transactions, a means of enabling producers to benefit from the tax relief with a net gain of 5%-10% of the acquisition cost paid by a purchaser.

In using sale and leaseback the producer sells the film to a purchaser with taxable profits sufficient to utilise the tax relief, typically a film partnership of individuals with higher rate tax liability, and leases the film back over fifteen years. Most of the sale price is placed on deposit to secure the repayment installments, with the remainder the producer's net benefit. Copyright and exploitation rights return to the producer.

Certain conditions must be met for the purchaser to be able to claim the tax relief, including qualification of the film as British by the producer. Guidelines and formal certification can be obtained from the Department of Media, Culture and Sport.

While the producer is free to use the net benefit as they wish such as repayment of any outstanding production costs, as film income or to fund distribution plans, the benefit is of little use to a producer who is unable to start production due to insufficient funds. Some sale and leaseback organisations now advance funding to producers before production starts if they have certain guarantees that the required conditions will eventually be met.

In order to avoid actions which may result in the film falling outside the conditions required for a sale and leaseback it is advisable to seek professional legal and tax advice both before starting production and during a transaction. During a transaction it is important to ensure that ownership of the film is fully regained and that the transaction does not result in corporation tax liability for the producer.

Some companies specialising in sale and leaseback:

Ernst & Young

Becket House
1 Lambeth Palace Road
London
SE1 7EU

Tel 020 7951 2000

Future Film Group

25 Noel Street
London
W1F 8GX

Tel 020 743 6600
Fax 020 7434 6622

www.futurefilmgroup.com

Future Film Group aims to bring together British filmmaking talent and the financial resources of the City of London to provide capital backing for production, post-production and distribution. In addition to a joint venture with Metrodome Distribution investing around £10 million in UK distribution, Future plans to establish an equity fund of £30 million linked to a tax efficient investment vehicle for their investors and to launch a post-production facility in London.

Future manage several film partnerships that have acquired over £170 million of films through sale and leaseback since March 1998. A production financing version offering funds for production has been developed and is available for certain films.

Indy UK

Tel 07000 463985

www.indyuk.co.uk

Simon Ricketts. simon@indyuk.co.uk

Overview

Indy UK acts as an agent assisting producers with securing sale and leaseback benefits from a number of film partnerships. With film acquisition funds available the company requires completed feature films qualified as British and offer a ten day turnaround for successful transactions. Although they can only deal with completed films, Indy UK also start discussions with production which have not finished.

Matrix Film Britannia

Matrix Film Britannia
Gossard House
7-8 Saville Row
London
W1X 1AF

Tel 020 7292 0800
Fax 020 7292 0801

www.matrix-securities.co.uk
films@matrix-securities.co.uk

Contact - Donald Mackinnon 020 7292 0899

Overview

Matrix Film Britannia is a joint venture between corporate finance company Matrix Securities and the completion guarantor Film Finances.