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It never happens like this in the films...

HMRC have today announced a further crackdown on losses arising from film and other partnerships where the partner is "non-active" (i.e., spending an average of less than 10 hours a week personally engaged in a partnership’s trading activities). Broadly, from 2 March 2007 the ability of such a partner to offset trading losses against other income and gains will be severely restricted.

Currently a non-active partner can claim “sideways relief” on trading losses up to the amount of capital that the partner has contributed to the partnership.

The new proposal has two strands:-

Capital contributions will be excluded if paid after 2 March 2007 and where the main purpose, or one of the main purposes, for contributing the capital to the partnership is for the partner to have access to losses for which sideways loss relief can be claimed.
The amount of losses, in any event, which a non-active partner can claim against other income and gains will be capped at £25,000 for any tax year.

Losses not used against other income and gains can be carried forward against future profits.

The effect of this measure is to restrict or deny losses derived from film partnerships, where the contribution is made on or after 2 March 2007.

You need to immediately advise clients who are considering investing in a film partnership of this measure.

The sideways reliefs referred to are loss claims under S380 & S381 ICTA 1988 (against other income) and S72 FA 1991 (capital gains).

The will be an apportionment to separate “pre-announcement losses” from losses after 2 March 2007.