Ethical investors financing social enterprises and community projects can pick up income tax and capital gains tax reliefs in return for the use of their cash with Social Investment Tax Relief (SITR).
SITR is a new tax break introduced in Budget 2014 by Chancellor George Osborne.
The advantages and features for investors have been overshadowed by pension reforms announced at the same time, but offer significant tax breaks to investors looking for a high return.
SITR benefits for investors
Investors can fund up to £1 million of SITR projects between April 2014 and April 2019, although the maximum single project can only take in around £300,000 over a three-year period.
The SITR tax breaks are in addition to those offered by the Seed Enterprise Investment Scheme (SEIS) or Enterprise Investment Scheme (EIS) so add another layer of valuable tax benefits for wealthy investors.
What are the SITR tax breaks?
- An income tax reduction of 30% on the total amount invested in each project
- Capital gains tax (CGT) hold-over relief on cash for investment raised from selling other assets
- CGT disposal relief on investment growth
To receive the tax breaks, the SITR project must be approved by HM Revenue & Customs (HMRC) as a suitable scheme qualifying for investment.
Who can invest in an SITR?
SITR rules are more about who can’t invest rather than who can –barred investors include:
- Partners or trustees of the social enterprise or of a subsidiary of the social enterprise
- Paid directors or employees of the social enterprise or of a subsidiary, partner or partner of a subsidiary of the social enterprise
- Anyone who owns 30% or more of the social enterprise’s:
– ordinary share capital
– loan capital
– voting rights
up to a year before the investment to the third anniversary of the investment.
Any investments by as associates are included in the 30% limit. ‘Associates’ are business partners, spouses, civil partners, parents and grandparents, children and grandchildren, or the trustees of any settlement where the investor is a settlor or beneficiary.
Another anti-tax avoidance rule does not allow investors in separate social enterprises to invest in each other’s projects on behalf of the other party.
How long must the money be invested?
Investments of less than 36 months do not qualify for SITR tax relief
How is the investment made?
An SITR takes the form of an equity stake or debt.
