In April 2014 the UK introduced a social investment tax relief (SITR), which is intended to make the UK one of the easiest places in the world to invest in social enterprises.
In general terms, social enterprises are businesses that trade for social good or public benefit, and often undertake projects in the local community. They make up about 7% of the SME population and exist in a range of sectors such as employment, healthcare and sport and leisure.
These businesses often face a funding shortage, and SITR provides a tax incentive to help bridge this gap. Here are some of the headline features for individual investors:
- Maximum investment per individual will be £1 million in each tax year
- Minimum investment period of three years
- 30% income tax relief and exemption from capital gains tax
The relief will be available for private investment into qualifying social sector organisations: charities, community interest companies and community benefit societies. The social enterprises must have fewer than 500 employees and less than £15 million gross assets.
As a means of attracting investment, SITR creates a more level playing field for social enterprises when compared with other small companies. The table below compares the headline position of the three main tax advantaged schemes for investors.