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Film investment must be remembered for its cultural, not tax, returns

HNWs find that investing in films is a way to broaden their creative insight and contribute to the country's zeitgeist, writes James Atherton.

A couple of days ago I received a call from an old friend wanting to know more about today’s film investment business. He’d dabbled as an investor himself many years ago, trying to take advantage of some of the tax incentives on offer but he’d quickly lost interest. Since then he’d had considerable success in his professional life, and his tax planning had gone well, so he found himself in a position to have another go.

But this time he wanted more than to just hand over the money. He wanted a stimulating way to contribute to the cultural landscape and become an active participant in an artistic endeavour. Thankfully, I could reassure him that these days that’s exactly what an investor using an established film investment company can look forward to.

The British film industry has flourished over the last decade, winning some of the most prestigious international awards. The UK is now renowned around the world as one of the most creative, ambitious, and exciting countries for film.

In 2014, the UK film industry had an all-time high turnover of £7.7bn. Most of this success is of course down to the creative people involved in the production and development of these movies. But government support has also played a big part by backing film through tax incentives and public sector investment, which have unlocked a large amount of capital from some of the wealthiest investors in the country.

The government saw the value of having a vibrant and exciting film industry, and saw the huge spillover effects it would have on the rest of the creative industries and tourism, not to mention the foreign currency revenues from international success.

Over the last decade, investors have piled into film mostly because of these financial incentives. Schemes like EIS, for example, incentivise investors to invest to the tune of £1m in return for 30 per cent rebate on their income tax. This relief is something that we have seen appetite for among the investors we have worked with. In the 2014-2015 tax year, £1.7bn was raised through EIS, a significant portion being for film.

While a number of people will have invested in film for the tax incentives provided and then moved on, film investment can be so much more than just a tax vehicle: it can provide commercially competitive returns, if administered correctly, and above all it can provide the curious or artistically minded investor with a new creative home; with a way to dip their toes in the filmmaking process, and contribute to an artistic endeavour from the ground up.

Looking back, where EIS and other tax incentives for filmmaking have not always worked is when people see investing in films merely as a way to reduce their tax, which HMRC consider not to be in the spirit of the rules. There has been well documented in the press as numerous ‘film schemes’, costing both taxpayers and investors, came to light.

Where EIS has worked is when it has introduced investors to the film business, and got them interested and engaged with filmmaking. An investor should invest in film – over, for example, other alternative assets like wine – because they are passionate about film. That should be fostered, and they should be encouraged to continue to stay involved in film with or without tax reliefs.

This is now more crucial than ever. We suspect the time, if ever there was one, of raising money principally to qualify for tax incentives rather than to trade, is over. Film investment companies must continue to engage investors because of their love of film rather than simply the financial return, although the latter is clearly critical too.

Many investors love film, and are rightly proud of the BAFTAs, Golden Globes, and Oscars, their investments return. They’re contributing to the country’s zeitgeist; and play a role in defining and developing our cultural life.

James Atherton is the CEO of Quickfire Films