AFM 2024: UK’s New Tax Credit Sparks Interest from Global Film Producers

The UK’s new Independent Film Tax Credit (IFTC) is drawing attention at AFM 2024, promising enhanced tax relief for eligible films with a qualifying spend of up to £15 million.

The new credit, aimed at supporting independent film production, offers a significant boost with a 53% enhanced credit rate, translating to a net rate of nearly 40% after tax.

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A Major Win for Independent Film Producers

The introduction of the UK’s Independent Film Tax Credit (IFTC) is being celebrated as a significant milestone for the local film market. The IFTC will enable eligible films with budgets under £15 million to opt-in for the enhanced Audio-Visual Expenditure Credit (AVEC). This credit, offered at 53% on qualifying expenditures, effectively provides around 40% in financial relief.

The 40% tax credit is available to independent producers, studios, and streamers who produce more modestly budgeted feature films under £15 million.

However, despite the enthusiasm at AFM this year, questions remain about the practical implementation of the new credits. Producers are still concerned about securing financing and managing escalating production costs, which pose significant challenges as distributors cut back on minimum guarantees.

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Simplified Tax Incentive Lures US Producers to the UK

With high production costs and complex tax credit systems in the US, the UK’s new IFTC presents an enticing alternative. Producers from the States find the streamlined, competitive UK tax relief a welcomed change, allowing for significant savings while leveraging the country’s robust film infrastructure.

Productions like XYZ Films’ Alphas and Palisades Park Pictures’ Eyes In The Trees are relocating to the UK, meeting the new tax credit’s criteria by integrating UK-based writers or certifying as co-productions. Producers are increasingly adapting projects to fit UK guidelines, turning to the UK for financial benefits, crew availability, and infrastructure.

Industry insiders predict that AFM 2024 is just the beginning of a larger pivot. As more producers from the US and other countries explore the benefits of filming in the UK, the British film sector anticipates a steady stream of international projects adapting to leverage this lucrative new incentive.

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How the IFTC Supports Independent Films

Announced in the 2024 Spring Budget, the IFTC allows qualifying films to claim up to £6.36 million in credit on core expenses. The relief applies to productions with costs below £23.5 million, capped at 80% of qualifying expenditure, and is exclusive to theatrical releases. Principal photography must have begun after April 1, 2024, with claims starting April 2025.

To be eligible, films must meet BFI’s cultural test, have a UK-based writer or director, or be an official UK co-production. Additionally, projects must be certified as low-budget by the BFI. The tax credit is designed to benefit independent films that already qualify for the UK’s Audio-Visual Expenditure Credit (AVEC) but are unavailable for TV productions or visual effects uplifts.

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Essential Details on UK Film Tax Incentives

The Audio-Visual Expenditure Credit (AVEC) was introduced on January 1, 2024, to replace the previous tax reliefs for film, episodic and children’s television, and animated works.

Under the previous schemes, audio-visual tax relief was provided through an additional deduction from profits or by surrendering a loss for a tax credit. With AVEC, companies now receive an above-the-line tax credit based on qualifying expenditures, which is taxable at the main corporation tax rate.

Thanks to its attractive incentives and high-quality crew and facilities, the UK has long been a leading hub for international production. Thus, many film studios and streamers commit a significant portion of their production output to the UK.

Claims can be submitted to HMRC from 1 April 2025 onwards for expenditure incurred from 1 April 2024, provided a film started principal photography after 1 April 2024. Below is an overview of the new incentive.

• Enhanced Tax Credits: UK-qualifying films with budgets under £15 million can now claim an enhanced Audio-Visual Expenditure Credit (AVEC) at 53%, equating to about 40% in relief. Full details are pending confirmation.
• Visual Effects and Studio Relief: From April 2025, visual effects relief will increase by 5%, removing the 80% cap, resulting in a 39% total relief for UK visual effects. Additionally, studio facilities in England will receive a 40% relief on business rates until 2034.
• Current Relief Rates: Films and high-end TV (HETV) programs currently have an incentive rate of 34%, equating to 25.5% actual relief, capped at 80% of core expenditure without a budget limit.
• Certification Requirements: To qualify for UK tax incentives, films, animation, or TV programs must be certified as British through the cultural test or qualify as official co-productions.

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Soaring Costs and Disruptions Challenge UK Independent Film Producers

The UK’s independent film producers are grappling with rising costs and significant market disruptions, primarily driven by the transformative influence of US streaming giants. Since 2020, production costs have surged by approximately 20%, yet overall budgets have not kept pace. Concurrently, cinema audiences have dwindled and have yet to return significantly, exacerbating the financial strain on producers.

Private investment in UK film production has become increasingly scarce, with a noticeable shift towards debt financing over equity. Investors are demanding more significant yields, with some seeking double or triple the percentages they did just a few years ago. 

Compounding these challenges is the aggressive expansion of US streamers in international production. The relationship between the UK film industry and US streamers is complex. As competition among these streamers intensifies, they aggressively acquire intellectual property rights, often for substantial sums. While this provides immediate financial relief to producers, it also strips them of future revenue streams from these properties.

Despite these challenges, inward investment in the UK film industry reached record levels in 2022, with total production spending hitting £2 billion, marking a 31% increase from 2021. However, spending on local UK films dropped by the same percentage, and independent UK filmmaking comprised only 9% of the total spend on film and television content.

With their substantial financial resources, US streamers have also monopolized UK studio space and driven up crew rates, further straining the budgets of independent producers. The independent sector is pushing hard to finance and shoot films this year, but investors, sales agents, and distributors are wary of making commitments amidst ongoing uncertainties about theater attendance and the collapse of several distribution revenue streams.

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FilmTake Away: Easing the Burden of Rising Production Costs in the UK

With the introduction of the IFTC, the UK has solidified its position as a leading destination for independent film production in Europe, offering competitive tax incentives that are especially appealing to US and international producers.

AFM 2024 attendees are eyeing the UK’s favorable production landscape, anticipating a rise in cross-Atlantic partnerships and developing new projects to take advantage of this generous tax relief.

However, the crucial question remains: How much will the IFTC help producers offset rising production costs, especially in high-cost London, amidst growing financial pressures across the industry?

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