HM Treasury released on 10 December key detail on the proposed Social Investment Tax Relief (SITR). Our impression is that HM Treasury has spent time listening to social enterprises and charities and their needs, as well as to intermediaries as they attempt to construct investments that satisfy both providers of cash (investors) and users of cash (social enterprises).
We are pleased that the eligible investees can now include co-operatives (through registration with the FCA), unregulated CLGs (through registration with the CIC Regulator) and social impact bond share companies (accredited by the Government).
Whilst the amount of tax-advantaged capital that a social enterprise can raise will remain limited during the first applicable tax year 2014-15, the inclusion of plain vanilla unsecured debt will mean that small enterprises can immediately offer its Friends & Family network a tax relief against providing much needed growth capital.
Once the amount of tax-advantaged capital has been raised to the level of a commercial enterprise (£5 million per rolling 12 months) in 2015-16, there will be wider and further utilisation of SITR.
Our firm belief is that a wide section of the investing public will want to invest for the benefit of UK society. It is therefore important to see how the SITR eligibility rules (regarding both investees and instruments) could be transferred to the already existing Venture Capital Trust-style indirect investment scheme or some other similar indirect scheme. HM Treasury’s roadmap for social investment, scheduled for January 2014, will be a further step in the right direction.
Tax Relief on a Personal Level
What does this mean for the individual investor? Below are three small ways in which the new tax relief can make an individual investor like myself more likely to dip her toe into the new and exciting impact investment arena:
- Retail bonds – for the right investee and instrument: During the past year, Triodos Bank and Fidelitas Capital have arranged several exciting, fixed-coupon bond offerings by charities and environmentally minded companies. Examples include £10 million for Golden Lane Housing (for the benefit of learning disability charity Mencap), £5 million for Greenwich Leisure Limited and up to £5 million for Avante Partnership (a dementia charity). Many of us have already invested in these. For the right charity or social enterprise, and when correctly structured, these retail bonds should with time (when the investee limit is increased) be able to make use of the new tax relief.
- Social Impact Bonds (SIBs): An increasing number of gritty social issues have now been tackled through the SIB: children on the edge of care, NEETs, adoption, homelessness, etc. When the next generation of SIBs is created in 2014 and beyond, there is the possibility for individuals like myself to invest a proportion of my liquid assets in a SIB instrument and receive an up-front tax relief in the fiscal year I invest. Additionally, any capital gains reliefs available to a commercial Enterprise Investment Scheme investor would now also be available to me, the SITR investor. For instance, the loss relief element of the relief could reduce my potential downside on a £10,000 investment to less than £4,000.
- Community Organisations – Pubs, Care Homes, Nurseries, Community Regeneration: Provided the investee fits the size and trading activity requirements, a local co-operative or Community Interest Company can raise capital from local residents and, in return, offer an upfront tax benefit. The April 2011 IPSOS Mori survey Investing for the Good of Society indicated that a local investment combined with a tax relief constituted a highly attractive investment opportunity for a wealthy individual.
With the tax relief in place, and a roadmap for increasing its size and reach to a wider audience, it is now back to the drawing board for charities, social enterprises and intermediaries to see how we could make use of the new relief in 2014.
By Annika Tverin, Director at Social Finance