Want to invest in a social enterprise? Tax relief now available

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Investors looking to put their money into social enterprises can now benefit from tax relief on their investments, following the introduction of Social Investment Tax Relief (SITR) earlier this year.

The relief applies to investments made on or after 6 April 2014 by an individual who invests in a qualifying social enterprise through the purchase of shares or by debt investment.

Under the scheme, an investor who makes a qualifying investment can deduct 30% of the amount invested, up to a maximum investment per year of £1 million, from his income tax liability. Capital gains tax relief is also available. However, the investment must be held for at least three years for the relief to be retained.

What is a qualifying social enterprise?

In order to attract investment under the SITR scheme, the social enterprise itself must satisfy certain conditions. These include:

  • the type of social enterprise;
  • the size and structure of the social enterprise;
  • the type of investments being offered; and
  • how the investment is used.

See HMRC's guidance for social enterprises here.

What is a qualifying investment?

There are also conditions imposed on potential investors by the legislation. These relate to:

  • the investor's relationship with the social enterprise;
  • the terms on which the investor has invested in the social enterprise;
  • and the type of investment made.

See HMRC's guidance for investors here.

Relationship with other schemes

SITR is modelled on the framework for the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS). However, unlike either of these reliefs, which are only available on investments in shares, SITR also extends to debt investments, such as the purchase of bonds or debentures. SITR was designed to extend to debt investment as many charities and social enterprises wanting to receive social investment are structured so that they do not have shares.

To see the full range of guidance notes produced by HMRC, click here