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.

Most SITR investments are likely to be made in the form of interest bearing loans

SITR Schemes currently open

NameSocial PurposeRegional FocusAdviserClosing DatesMin
Investment
Raised/
Sought
Bright Futures SITR FundDiverse but in line with Big Society Capital Outcomes MatrixNationalSocial Finance30 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 FundDismantling povertyBristolResonance Impact Investment31 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

SITR schemes are classified by the FCA as Non Readily Realisable Securities. These can only be promoted to investors who seek regulated advice, are classified as High Net Worth or Sophisticated investors or are prepared to certify that they will invest less than 10% of their net investable assets in such securities. If you fall into any of these categories, please contact EQ for further information.

Important Information

The information set out above is included for information purposes only and is not an offer or an invitation to buy or sell or a solicitation of an offer or invitation to buy or sell or enter into any agreement with respect to any security, product, service or investment. Any opinions expressed do not constitute investment advice and independent advice should be sought where appropriate. All information is current as of the date of publication, subject to change without notice, and may become outdated over time. Links to third party sites or pages are for information purposes only and such sites and pages are not part of this website or the responsibility of EQ Investors Limited and have not have been reviewed or verified by EQ Investors Limited. Following links to or from any other sites or pages shall be at your own risk.

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 Basics

Maximum investment:

£1 million per tax year


Pros:
  • 30% Initial tax credit
  • CGT Deferral
  • Potential for social as well as financial benefits
Cons:
  • 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

Useful Sites

Big Issue Invest has raised over £30m. for social organisations.
Big Society Capital was set up by the Government to spearhead the development of social finance
Official site describing how SITR works
The national body for social enterprises
Fund manager and investment bank for social enterprises
The Social Stock Exchange is a regulated exchange dedicated to businesses and investors seeking to achieve a positive social and environmental impact through their activities.