The rules which meant that Sense and Sensibility, winner of a clutch of Oscars and Baftas, was officially a foreign film, are to be scrapped.
Next month, the Secretary of State for Culture, Chris Smith, will change the law so that more films made in Britain qualify for government grants, lottery funding and tax breaks.
The changes will give big Hollywood studios more incentives to film in the UK. And they will mean that films, such as The English Patient, which failed to gain a British certificate because too much post-production work was carried out abroad, will have less trouble qualifying for UK money.
The Government will also close a loophole that has allowed gameshows, including Blockbusters and Bullseye, to qualify for British film status.
"It's about making the rules simpler, more practical and easier to apply," said a Department of Culture official. "They are quite illogical."
But the new law, to be laid before Parliament next month, will end the freedom to shoot an unlimited amount of footage on location.
This will mean that big-budget British movies shot abroad, such as Evita, which was filmed in Argentina and Budapest, may have to include more scenes shot in the UK.
Independent films such as Conquest, a British drama starring Tara Fitzgerald, which was entirely shot on location in Canada, may also have trouble getting a UK stamp of approval.
Under the current rules, producers have to sit with a stop watch to make sure that 92.5 per cent of a film's running time is created in Britain.
The rules have led to many producers stretching the titles and credits so that the film - and the amount of studio time used in the UK - grows on paper.
The fact that producers are often required to log to the second where each scene was shot, recorded and mixed, has put off many film companies from applying at all.
"These rules go years and years back. They relate to the historic position of the studios," said Larry Chrisfield, chairman of the British Film Commission. "The current definition causes problems because if an American company does post-production or some additions to dialogue in LA, they get disqualified. This studio requirement is a bit of a bugbear."
The new classification will be based on how much money is spent in Britain rather than studio use.
David Parfitt, producer of Shakespeare in Love, which gained six Golden Globe awards including Best Motion Picture last week, said that there was public confusion about what does constitute a British film.
The film, which stars Gwyneth Paltrow, Colin Firth and Joseph Fiennes, recently qualified for a bank "sale-leaseback" deal, which enables producers of British films to sell them to a bank and lease them back to raise money.
"People are confused about what constitutes a British film. It's really complicated," he said. "We applied for Shakespeare in Love to be a British film and we managed it. It was all shot here in the UK. Everything was done here."
In future a certificate will be granted if 75 per cent of the movie's production budget is spent in the UK and most of the actors and crew are from Britain, Europe or the Commonwealth countries.
Films such as the Coen brothers' thriller Fargo, which was made by a British production company, Working Title, would not qualify for a certificate, since most of the cast were from NorthAmerica.
The rules will apply to Hollywood studios with a subsidiary in Britain and they will be loosened if most of the preparation for a film is done in the UK and if at least half of the technical equipment used in the production ofthe film is British. Last year, 121 films were shot in the UK.
A British classification gives film companies access to millions of pounds of lottery money, government grants and EU aid. There are also various tax-breaks for films that the Government classifies as British. At the moment, films such as the sci-fi fantasy Judge Dredd,which star Americans and are financed by American companies, qualify because of the amount of studio time they clock-up.
Last week, the Government allotted pounds 27m of lottery funding a year to film, on top of the pounds 20.8m a year that comes from government grants.
Tom Conti, star of Shirley Valentine, said that the answer to helping UK movies was to offer more incentives to film in this country.
"It's all very well to say come back to Britain to film, but you need to offer some more tax-breaks to come here," he said. "I remember a county council in Berlin which put up $1m for a picture if you spent $1m in Berlin. I can't see a UK county council doing that. We have to advertise our country, and one of the ways to do that is to make films about it. Americans make pictures about every area of American life and we need to learn to do the same."Reuse content