Chancellor Gordon Brown said today that he would provide new tax creditsfor film-makers to replace the existing Section 48 and Section 42 tax reliefs.

Brownunveiled the plans as he announced his Budget for 2005 in the House Of Commons.The UK Treasury later confirmed that the Government would review the Section 42relief used for large budget films - as previously announced in the 2004pre-budget report - "to ensure that it remains an effectivemeans of delivering Government objectives for supporting a sustainable UK filmindustry."

TheTreasury said it wanted to replace Section 42 with a new tax credit modelsimilar to that proposed as a replacement for Section 48, the tax initiativefor low-budget films.

Itadded that: "The Government has concluded that the current relief for largebudget films is no longer effective for this purpose. The Government isconcerned that the sale and leaseback structures currently used to access therelief are inefficient, a target for abuse, make the cost of providing supportuntenable and might contribute to industry fragility and instability."

Meanwhile,as predicted by, the Treasury has decided to extendSection 48 tax relief until "at least 31 March 2006".

TheTreasury said it was committed to the principles and terms of the proposed new taxcredit that is due to replace Section 48, but added that it "recognizes thatthe industry has concerns, in the short term, about its practical operation."

Itadded that the extension of Section 48 would allow more time for formalconsultation with the industry on draft legislation.

Anannouncement of the timetable for publication of a consultation document, includingdraft legislation and formal consultation with the industry will be madeshortly, the Treasury said. The transition from the current to the new film taxreliefs will then happen next year.

The Chancellor's announcement was welcomed by the UK Film Council and producers body Pact.

UK Film Council chairman John Woodward commented: "We welcome the Government's announcement today that tax relief for low budget films will be extended to 1 April 2006 following the extensive work undertaken by the UK Film Council and its industry partners. The Government's on-going support for the British film industry provides certainty for film production in the short term whilst work continues on the replacement tax credit. In addition, the Government's decision to consult formally with the industry on ensuring that effective tax reliefs for both low and high budget feature films will ensure the longer-term viability of the film industry."

Pact said it was relieved by the extension of Section 48 tax relief and said that any film commencing principal photography before 1 April 2006 and completed by 1 January 2007 will be eligible for the relief.

However, it said the volume of UK film production in 2005 was likely to fall significantly compared to last year because of the recent uncertainty about what would happen to Section 48.

Tim Willis, director of film at Pact said: "The last year has been very tough for producers and of course we are relieved that the immediate uncertainty surrounding Section 48 has been addressed. We look forward to the consultation exercise on the new permanent tax credit and we remain hopeful that it will provide the promised 20% benefit to producers."