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Spring-Budget-Notforprofit2021
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Last updated: 3 Mar 2021
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Is your charity claiming Social Investment Tax Relief?

Following the Spring Budget, Social Investment Tax Relief has been extended to April 2023. Charities and social enterprises should make the most of the opportunity to attract tax efficient investment before time runs out.
How you can benefit from Social Investment Tax Relief

What is the Social Investment Tax Relief and how can you benefit?

Social Investment Tax Relief (SITR) was introduced in 2014 as a venture capital scheme available to charities, community interest companies and community benefit societies.

Unlike most other venture capital schemes, such as the Enterprise Investment Scheme, SITR covers not only equity investments but also loans – making this accessible to charities in particular.

Investors who make a qualifying equity (investment in shares only for non-charity social enterprises) or loan (includes charities) investment under SITR receive income tax relief of 30% of their investment, as long as they hold the investment for at least three years.

For example, an investor could make an interest-free three-year loan of £50,000 to a charity and receive £15,000 of tax relief at no cost to the charity. In practice, loans are often made interest-free as the lender receives a good return in tax relief.  

Also, investors are exempt from capital gains tax on the disposal of a qualifying SITR equity investment and it is possible to defer capital gains on other disposals by reinvesting them into a SITR qualifying investment. The scheme is therefore attractive to investors but the window of opportunity to attract them is narrowing.

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Jon Daley

+44(0)20 7556 1292
DaleyJ@buzzacott.co.uk
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What is the Social Investment Tax Relief and how can you benefit?

Social Investment Tax Relief (SITR) was introduced in 2014 as a venture capital scheme available to charities, community interest companies and community benefit societies.

Unlike most other venture capital schemes, such as the Enterprise Investment Scheme, SITR covers not only equity investments but also loans – making this accessible to charities in particular.

Investors who make a qualifying equity (investment in shares only for non-charity social enterprises) or loan (includes charities) investment under SITR receive income tax relief of 30% of their investment, as long as they hold the investment for at least three years.

For example, an investor could make an interest-free three-year loan of £50,000 to a charity and receive £15,000 of tax relief at no cost to the charity. In practice, loans are often made interest-free as the lender receives a good return in tax relief.  

Also, investors are exempt from capital gains tax on the disposal of a qualifying SITR equity investment and it is possible to defer capital gains on other disposals by reinvesting them into a SITR qualifying investment. The scheme is therefore attractive to investors but the window of opportunity to attract them is narrowing.

Restrictions and requirements of a SITR loan

What are the restrictions and requirements of making a SITR loan?

There are a number of restrictions and requirements to qualify for SITR. Key restrictions include:

• The charity or social enterprise must have no more than £15m gross assets and 250 employees.

• The investment must be used in a trading activity (with certain trades, such as property development being excluded), however the trade can be carried out by a subsidiary that is owned 90% or more by the charity.

• The maximum amount of investment permitted under state aid limits over a three year period is approximately £300,000 or £1.5 million if the charity or social enterprise has been operating for less than seven years.

It is possible for charities to apply for advance assurance from HM Revenue and Customs to ensure that their fundraising plans will qualify for SITR.

How we can help your charity benefit from SITR
How we can help you or your charity benefit from SITR?

Campaigners will be relieved that the government has extended the SITR scheme, which was due to come to an end in April 2021,  for a further two years, until April 2023. With Brexit potentially removing the State Aid limits on the amount that can be invested, this relief could be a substantial opportunity for charities and social enterprises in the coming two years. 

At Buzzacott, our expertise of both the charity and not for profit sector and venture capital investment schemes means we can help ensure your charity or social enterprise is set up in the correct way to receive qualifying investments in the most efficient way, while you still can!

Speak to an expert

To speak to one of our expert team about how you or your charity could benefit from Social Investment Tax Relief, please complete the short form below and we will be in touch.

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