The Social Investment Tax Relief is a government incentive aimed at supporting the growth of social investments through alternative sources of funding. Since April 2017 the relief has been made more attractive for investors and social enterprises. But, what is the relief and are you making use of it?
What is Social Investment Tax Relief (SITR)?
In April 2014, the government introduced a tax relief to give investors a break when financing a social enterprise. The aim of the relief is to give organisations a platform on which they can easily expand by increasing their access to external funding and support. This should help enterprises better compete and survive.
Currently, individual enterprises can only receive a maximum of £250,000 over a period of three years. Individual investors, however, can invest up to £1million into more than one social enterprise. It is important to note that this is separate from any Seed Enterprise Investment Scheme (SEIS) or Enterprise Investment Scheme (EIS) the investor may be involved in.
In order for a charity to qualify for an investment, several conditions must be satisfied. The charity must:
- Have a defined and regulated social purpose – e.g. be registered as a charity, community interest company or community benefit society
- Have fewer than 500 employees
- Have total gross assets valued at less than £15million
The government intend for the SITR to provide substantial cost benefits to the investor. Individuals will be able to deduct up to 30% of the value of the investment away from their income tax liability. This however, can only be made in the same tax year that the investment was made in or previous year (up to 2014/15 tax year). However, investments must be made for a period of three years in order to qualify for the relief. Furthermore, where an individual may have chargeable capital gains, they can defer their Capital Gains Tax (CGT) liability if they do invest into a social investment. This will only then be payable when the social enterprise is sold or redeemed. Additionally, there is no CGT payable on any social investments, however, income tax is payable on any dividends or interest on the investment.
Since April 2017, several changes have been made in the hope of making SITR more attractive to investors. This includes:
- The amount individuals can invest will increase to £1.5million, up from £1million, for a period of three years
- Social enterprises must only have a maximum of 250 employees. This will decrease from the initial 500.
- All social enterprises will need to raise their first investment within seven years of making their first commercial sale
- All investments made will only benefit from the tax break if they are made under the SITR
To discuss the benefits of the Social Investment Tax Relief or the SITR, please contact our charity and not-for-profit specialist, Suda Ratnam, directly at firstname.lastname@example.org.