Social Investment Tax Relief (SITR) is an investment offering tax relief to wealthy good Samaritans who put money into social enterprises to help less well-off people and communities.
Some consider the scheme as a way for the government to raise finance for social projects that cannot raise public funds because of spending cuts.
Others believe SITR is a method of ethical investing that does good for others.
Whatever the investor’s standpoint, before considering putting money into SITR, an understanding of how the scheme works is important.
SITR offers individual investors income and capital gains tax reliefs for backing social enterprises between April 6, 2014 and April 5, 2019.
SITR tax breaks
Investors can put money into more than one SITR and claim:
- A reduction in income tax of 30% of the amount invested up to an annual maximum of £1 million.
Potentially, that’s a £300,000 tax saving on £1 million paid as income tax
- Capital gains tax hold-over relief if the gain is reinvested in shares or loans that qualify for SITR income tax relief or capital gains tax disposal relief
- Capital gains tax relief on any gain relating to disposing of an SITR investment
Besides the tax benefits of investing in SITR, investors also gain a feel-good factor from high returns offered by social enterprises seeking funds.
For instance, Midlands Together, a community organisation aiding ex-offenders to find work by developing property wants to raise £3 million by issuing a bond offering a 4% to 6% fixed rate interest over three years which can be wrapped in SITR.
SITR v SEIS
For higher rate taxpayers, returns can be boosted by Community Interest Tax Relief (CITR), another government backed scheme offering tax breaks for investors backing community projects in disadvantaged neighbourhoods. This pushed the return on the Midlands Together bond up to 15%.
To gain the tax breaks, investors must tie-up their cash for at least three years in an approved SITR project or for five years in an approved CITR project.
Other strict qualifying conditions apply to both investors and the projects seeking investment that govern the nature of the relationship, type of investment and claiming tax reliefs.
SITR is aimed to attract ethical investors into funding social projects, but investors should also be aware of the Seed Enterprise Investment Scheme (SEIS), which is the business version of SITR.
SEIS offers improved tax reliefs on similar terms but no guaranteed returns on the fortunes of a start-up company.
