Social Investment Tax Relief
SITR is the newest tax relief for private investors. It operates in a similar way to EIS but is open to social enterprises that have a defined and regulated social purpose.
What is a Social Enterprise?
A social enterprise is an organisation that applies commercial strategies to maximise improvements in human and environmental well-being, which may include maximising social impact alongside profits for external shareholders.
There are already hundreds of social enterprises in the UK and the BBC has reported that social enterprises in the UK are thriving. A good example is the Freedom Bakery, which was set up by Matt Fountain in 2015 to provide employment opportunities for ex-offenders in Scotland and lower the reoffending rate.
How does SITR work?
Social enterprises can issue unsecured debt finance or equity.The maximum that can be raised by an organisation is approximately £270,000 over three years but will increase to £1.5 million from April 6th 2017 for organisations less than senn years old and with fewer than 250 employees.
Most SITR investments are likely to be made in the form of loans bearing a fixed rate of interest. This interest will usually be distributed to investors, net of 20% tax and will constitute taxable income. Since the loans are unsecured investors should expect there to be some defaults and so a diversified portfolio is essential.
We expect most SITR schemes will be marketed as ‘funds’ but they will actually be discretionary investment agreements which allow the manager to allocate each investor’s subscription across a number of projects. A tax certificate will be issued after each investment is made and will apply to the tax year in which the investment is made.
SITR Schemes currently open
|Name||Social Purpose||Regional Focus||Adviser||Closing Dates||Min |
|Bright Futures SITR Fund||Diverse but in line with Big Society Capital Outcomes Matrix||National||Social Finance||30 September 2016||£10,000||£1.4m /£1-3m|
By partnering with other social investors this fund expects to be able to invest in significantly larger deals than permitted just under the SITR rules currently and this should permit a faster repayment period.
|Resonance Bristol SITR Fund||Dismantling poverty||Bristol||Resonance Impact Investment||31 October 2016||£25,000||£1.3m /£5m.|
The fund intends to invest in relatively small enterprises, usually making 6 year term loans with repayments starting after 4 years.
How to invest
Social Investment Tax Relief schemes should be regarded as higher risk investments, suitable only for experienced investors who are able to withstand losses or for investors only investing less than 10% of their investable assets.
SITR BasicsMaximum investment:
£1 million per tax year
- 30% Initial tax credit
- CGT Deferral
- Potential for social as well as financial benefits
- Lack of track record
- The return is likely to be in the form of interest, which will be taxable
- 3 year minimum holding period
- Current low cap on amount per organisation = higher risk and costs