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Blog // 06/06/2016

Why are you scared to socially invest? 

Social Investment Tax Relief

With the reduction in government funding, the Not for Profit sector is increasingly having to look to its donors and external investors to meet funding needs.

Therefore, to overcome this issue the government introduced the Social Investment Tax Relief or (SITR) which provides a tax incentive to help bridge this gap and is intended to make the UK one of the easiest places to invest in social enterprises.

What is Social Investment Tax Relief or SITR?

The headline features for individual investors are:

  • Maximum investment per individual is £1 million in each tax year
  • Minimum investment period of three years
  • 30% income tax relief and exemption from capital gains tax
  • investment can take the form of shares or qualifying debt

There are, of course, a number of conditions for the relief: investors cannot be an employee, trustee or remunerated director of the social enterprise, nor can they hold more than 30% of the share/loan capital or voting power. Also, the social enterprise must have fewer than 500 employees and less than £15 million gross assets.

Is SITR all about tax?

As with any form of investment, there are other, primarily non-tax, considerations which potential investors should take into account, including:

  • How safe is my investment? – what can I expect to receive back from the charity? (Returns of any kind are never guaranteed.)
  • Social impact – how will my investment be used?
  • Capacity – does the charity have the resources necessary to be able to achieve its goals?

Is the relief worthwhile?

Social enterprises make up about 7% of the SME population and exist for social good or public benefit, operating in a range of areas such as employment, healthcare and, sport and leisure. SITR is an attractive scheme for social entrepreneurs looking to raise funds, as well as for investors looking for investments that reflect their social and ethical values. Hopefully, SITR will become an integral planning tool for both investors and social enterprises.

An update on Social Investment Tax Relief (SITR)

From 6 April 2017, the amount of investment social enterprises up to 7 years old can raise through SITR will increase to £1.5 million.

Other changes will be made to ensure that the scheme is well targeted. Certain activities, including asset leasing and on-lending, will be excluded. Investment in nursing homes and residential care homes will be excluded initially; however, the Government intends to introduce an accreditation system to allow such investment to qualify for SITR in the future. The limit on full-time equivalent employees will be reduced to 250. The gGovernment will undertake a review of SITR within two years of its enlargement.

For further information on the relief or how we can help please contact Malcolm Lucas on mlucas@menzies.co.uk

Find out more about Menzies Not-for-profit sector expertise.

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