UK Chancellor of the Exchequer Alistair Darling's 2008 Budget report has closed a tax loophole which some experts believe might have generated between $1.6bn (£800m) and $2bn (£1bn) for film.

Click here for analysis ofUK film finance after tax changes

A year ago, the government used the budget to clamp down on so-called sideways loss relief - by which investors, in their tax returns, offset predicted losses on film investment.

At the time, a number of partnerships set up by financiers such as Ingenious, Scion and Future planned to exploit the loophole with what might have produced a $4bn (£2bn) windfall for films.

That still left open the potential for individuals acting as sole traders to use the scheme and it seems that is exactly what has been happening - through the same financiers.

It was beginning to look like a potentially serious source of finance according to experts in the field. Most of the money from wealthy individuals was directed at buying territory rights to films, particularly from the US but also from the UK.

Accountants talked of schemes that would pump tens of millions from individual investors into deals that were believed to have been worth around 15% of a film budget.

'It did take six months to really get the 'sole trader' incentive going,' said Abigail Payne, of law firm Harbottle and Lewis.

'Now, it is functioning really well and films are lining up with finance plans including it and so I think there is going to be a big hole.'

'The 'sole trader' way of financing films has actually been used in the UK this year.'

'I think there is going to be a bit of a halt on films while they (the funds) restructure themselves. Not as bad as last March but there were quite a few films gearing up for production with 'sole trader' relief in their finance plans. It's a shame - predictable but a shame nonetheless.'

The UK Treasury crackdown today makes clear that support will only be valid where the investor can prove he or she is devoting at least 10 hours a week to the activity on which relief is claimed.

That will be very difficult for an individual to prove, says Martin Churchill, editor of the influential Tax Efficient Review.

He said the Treasury had acted because claims had reached an unavoidable level - he estimates at around $1.6bn-$2bn (£800m-£1bn.)

'If the Treasury had not acted the film industry would have seeen it as encouragement to use it more,' he said. 'This probably means the end of sideways loss relief.'

A Treasury statement said 'the government has made clear that avoiding tax through the use of sideways loss relief is unacceptable.'

The UK Film Council has been supportive of government action to stop tax loophole funding and a spokesman welcomed the Chancellor's actions.

'We have made clear over and over again that the Government will take action against tax avoidance schemes and that's what they've done today.

'The only specific tax relief for the production of films is the film tax relief which has been structured to help filmmakers; everything else has a large health warning attached to it.'

Keith Evans, founding director of Baker Street Media Finance warned that 'without the availability of sideways loss relief, investing in a tax
efficient film fund becomes pointless.

'It comes as absolutely no surprise that this has also been knocked on
the head. All it is is a variation on a theme. The regular players will
I am sure have expected it and managed to make to make sure that they closed as much business as possible by yesterday.

'I was surprised at the volume of business that apparently has been
done (using this kind of relief.) To my mind, it marks the end of an
era in that sort of tax scheme which uses film.'

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