The social investment tax relief (SITR) offers investors upfront tax breaks and capital gains tax exemptions, similar to those given for buying shares in Enterprise Investment Schemes (EIS). Potentially you could reclaim one or more of the following, subject to various conditions:
- Income tax relief: This is available at 30% of the amount you invest. There is no minimum investment limit but the maximum annual limit is £1 million.
- Capital gains hold-over relief: You can defer payment of tax on a capital gain if the gain is reinvested in shares or debt investments that would also qualify for SITR income tax relief.
- Capital gains disposal relief: If you’ve had income tax relief on the cost of your investment, and you dispose of your investment after you’ve held it for at least three years, any gain you make on your investment is free from capital gains tax.
SITR will be in place for investments made, or capital gains arising, in the period from 6 April 2014 to 5 April 2019.
It is available for investments by individuals (but not companies or partnerships) in ‘Social Enterprises’. In essence, the company or organisation in which the investment is made must provide services for the ‘benefit of society’, such as housing, community transport, youth organisations, sporting facilities or healthcare, so typically they will be charities or community benefit companies.
The Social Enterprise need not necessarily be in the UK, and there is no defined list of what qualifies, however there is a list of activities that do not qualify. The good news is that if you are an investor you will not need to worry about judging whether the recipient of your investment meets the conditions, because any organisation offering SITR qualifying investments to the public should have already gone through an HMRC clearance process in order to be able to do so.
When you make an investment, the Social Enterprise will give you a Compliance Certificate in respect of your investment in it, confirming they have met the conditions. You won’t be able to claim for any of the tax reliefs without such a certificate.
None of the reliefs is available if you have had relief for the investment under the EIS, the Seed Enterprise Investment Scheme or Community Investment Tax Relief.
There are numerous qualifying conditions and complications, so professional advice is essential.