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Social investment tax relief

14th April 2014

Taking effect from 6 April 2014, Social Investment Tax Relief (SITR) is a new opportunity for individuals to obtain income tax relief for investments in social enterprises and charities.

Qualifying social enterprises

The intention is for this to benefit investments in small social enterprises. Therefore there are rules in place to stop larger organisations from participating.

Briefly “social enterprises” are defined as community interest companies, community benefit societies or charities (whether set up as companies or by trusts). There are a number of qualifying criteria but briefly they cannot have more than 500 employees or gross assets of £15million before the investment.


Income tax relief

For those familiar with the Enterprise Investment Scheme (EIS), the tax rules will operate in a similar way. Income tax relief for an individual is available at 30% of the qualifying investment or debt up to an annual maximum of £1million. The investment must be held for a minimum of three years, otherwise the tax relief will be withdrawn. Taxpayers can elect to “carry back” the investment and treat it as if it were made in the previous tax year if that is more beneficial, although carry back does not apply for 2014/15 investments.

Capital Gains Tax (CGT) deferral and disposal relief

There is an opportunity to defer paying capital gains tax on realised gains up to the value of the investments under SITR. The investment must take place one year before or three years after the gain is realised.

Providing income tax relief was claimed on the original investment and is not withdrawn then any subsequent gain on the disposal or redemption of the investment will be tax-free once it has been held for at least three years.

Shares and loans

The date of an investment for shares will be the date they are issued by the social enterprise to the investor providing they have been paid for them in full beforehand. For qualifying debt, the date is regarded as the date the investor advances the money after having signed an effective loan agreement. Where the investor enters a loan agreement to allow the social enterprise to “draw down” funds as required, the date of the investment will be each time the money is advanced and not the date of the agreement itself.

Compliance Certificate

The social enterprise must use the investment funds for the purposes of their trade within 28 months or the tax relief will be withdrawn. It is responsible for applying for confirmation from HM Revenue & Customs that the investment qualifies. The social enterprise will then provide a Compliance Certificate to the investor allowing them to make any necessary personal tax claims.

This is a new tax relief although it does of course have many similarities to Enterprise Investment Scheme. If you have any questions, please contact Katharine Arthur.