BusinessCorporate FinanceAnalysis – The Future of film financing.

Analysis - The Future of film financing.

The government's decision to introduce 100% tax relief on the production and acquisition costs of films has been credited with helping to kick-start the British film industry. Future Films' Jeff Abberley is among its biggest fans

Jeff Abberley, joint managing director and tax expert at Future Film Group, denies passionately that he has been ‘seduced’ by the glitz of the film industry. His company provides ground-breaking financial advice and products for film funding but he refuses to see it as anything other than business.

‘That’s not to say some of the investors are not seduced,’ he says speaking from his Noel Street office in Soho.

‘I often describe it as the dinner-table syndrome. They want to be able to sit around the dinner table with their friends saying, “did you know I did the tax deal on such and such a film”?’

So Abberley is in it for the business, not the glamour. Strange when Future is behind Kate Winslett’s Enigma, one of the most talked-about films of this year, and Last Orders starring old British stager Michael Caine.

Even when Hugh Grant is in the building using the company’s post-production facilities and the office girls are all a-giggle, Abberley remains untouched, largely because sitting in his third floor office nobody tells him when the stars are in the house.

But then Abberley is focused on other things. Future Film is one of a handful of companies in the UK taking advantage of the government’s scheme which allows accelerated relief of 100% on the production or acquisition costs of a film.

Introduced in 1997 it has been a singularly successful Labour policy triggering huge growth in the British film industry and creating an environment in which companies like Future can build fast-growing businesses offering products that shelter investors from tax.

Abberley, a former partner at Haines Watts who trained at Binder Hamlyn, gave up a secure position as a tax specialist to build the business along with the company’s two other directors Tim Levy and Stephen Margolis.

Eschewing the glamour of the flicks, Abberley concentrates on building business.

‘Personally, the thing I’m most proud of is that 12 months ago this building existed but was an empty shell. It and all the people here – almost 40 employees – has all come about in the last 12 months. We’re a rapidly growing business and what makes me proud is employing people and developing a strong vibrant businesses.’

The core of Future’s trade is its sale and leaseback Section 48 scheme.

A typical investor joins a partnership with other investors. Together they put together funding to buy a film. Around 17.7% of the funding is in cash while the rest comes in the form of loans. Buying a movie gives rise to a loss which can be written off for tax purposes in the year of acquisition.

A tax refund returns the cash investment plus a surplus that is then invested to pay off the loan.

Clients for this kind of tightly-regulated vehicle range from those with large capital gains that are otherwise not sheltered, highly paid employees with large valuable share options and entrepreneurs who use the scheme to reinvest more money in their business by deferring the tax liability they would otherwise incur.

Future’s job is to match investors with films and their producers. So far it seems to be working out quite nicely. This year the company expects to handle investments worth #600m of which three quarters will be sale and leaseback. It also rents post production facilities, provides financial advice and has started making its own investments.

For Enigma, Future arranged tax deals to allow investors to use the tax arrangement, although the investment was substantially above the usual #15m limit which meant creating a new market, an initiative thought to be the first of its kind. For Last Orders, Future took an equity risk on the film which it will recover when the tax deal is done.

For film producers the great advantage is that they can use the scheme to get a large tranche of their costs up-front as ‘soft money’. It doesn’t require equity, so there’s little risk and it isn’t a loan that has to be repaid.

In a very real sense the scheme is a three-sided win – for the investors, the producers and the financial advisers, like Future, arranging the deal.

Striking the sale and leaseback tax deal could be the difference between rolling the cameras or telling the stars to stay in their luxury trailers.

‘10% doesn’t sound like very much but the last 10% of making a film is the most difficult,’ says Abberley.

For independent British films, those without the backing of a large studio, there are few options when raising the money for production. You can raise equity but it’s a difficult task because films are highly speculative.

You can borrow from banks, but what they’ll lend will be restricted.

Other options include selling the rights, but that might only cover a proportion of the cost. The ‘soft cash’, from the tax scheme is therefore invaluable. So important in fact that Future now no longer has to ‘chase down’ investors. The producers are coming to Future after accepting them as part of the furniture in film finance.

‘The film industry has genuinely gone through a resurgence,’ says Abberley. ‘Soho is now buzzing again. People come to us and ask our advice, and that’s an important indicator of how things have changed.’

However, there is a catch. The legislation allowing these arrangement came into being in 1997 and was originally intended to last only until 2000.

It was extended to 2002, and then again to 2005.

In effect there’s no telling how long the deals could last.

Last time the legislation was up for renewal there was intense lobbying of Westminster but at the moment there’s no panic from Abberley. But it does require a strategy to deal with it.

That simply means making the sale and leaseback scheme a much smaller proportion of the company’s turnover.

Currently, the tax deals account for around 75% of Future’s business.

The plan is to transform that to around 25% by around 2005. That way if the scheme is pulled by government Future doesn’t take such a big hit.

If Section 48 does go other film tax schemes will remain in place. However, Abberley believes the government has created a taste for investing in film that will not go away.

‘Either the reliefs will be extended or modified or new reliefs will come in. But it’s very clear the reliefs have had the desired effects for the film industry but it is only just having tangible effects.

‘Having created a market, and it is a substantial market, the appetite for investing in film deferral schemes will always exist,’ concludes Abberley.

– For more information on the Future Film group, go to

– To read more on film tax relief, visit


Future Film Group was incorporated in March 2000 to take advantage of the tax scheme set up for film production but did not start trading until September the same year when it moved into its Soho offices, writes Gavin Hinks.

In the short time since then the business has grown rapidly with the company handling deals worth #600m this year.

Around 75% of Future’s business rests on the Section 48 tax scheme set up by the government to help transform British film-making from a ‘cottage industry’ into a much more concentrated sector that could produce world class players.

However, use of the scheme is delimited by legislation until 2005. It could continue after that date but if it did not #450m worth of deals would be threatened.

Films that must qualify cost less than #15m and be certified as British.

But they can be British in a host of ways. Conventionally 70% of the expenditure has to be on British elements. But as far as the labour costs are concerned, any European Union or Commonwealth nationals count as British.

Britain also has co-production treaties with other countries which means the British spend only has to be 20% to qualify. Other treaties exist too allowing the domestic spend to be reduced to 25% to qualify as British for the tax breaks.

However, Future Film is already thinking about what happens when the legislation expires in 2005. Tim Levy, Future’s chief executive (right), says: ‘Our aim is by 2005 to have just 25% of our revenue coming from Section 48.

‘It means we have to grow certain areas of business very substantially.

‘If you imagine that our total revenue is #10m and #7m comes from Section 48 it means business has got to turn over #28m by 2005.’

However, 2005 is not Levy’s real concern. ‘The thing we worry about most is the effect a recession might have.

‘If you have a tight economy this year, next year and the year after, there’s not going to be a lot of tax capacity around. That’s an issue.’

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