Shore road

Social Investment Tax Relief (SITR)

SITR allows relief against income tax of 30% of the cost of a social investment made by an unconnected individual.

Tom Elliott
Shore road
SITR is available on investments between 6 April 2014 and 5 April 2019, up to £1 million of investment a year per investor, with the ability to use unused capacity from the previous tax year. This means an income tax saving of up to £300,000 of tax relief a year.

In a similar way to the reliefs under the Enterprise Investment Scheme (EIS):

  • Capital gains realised in 2014-15 (or later years) on any asset can be re-invested in a qualifying social investment and deferred until the investment is sold or redeemed.
  • Gains that would have qualified for Entrepreneurs' relief benefit from the reduced 10% rate of capital gains tax when the deferred gain crystallises.
  • Any gains realised on the social investment itself are not subject to tax.
  • Tax is still paid on income realised from the investment (e.g. by way of dividend or interest).

Unlike EIS, the relief extends to include accredited social impact bonds and debt instruments, giving the investor a greater selection of possible investment options and opportunities.

What is a social enterprise?

Broadly, a social enterprise is a business with primarily social objectives whose surpluses are reinvested for the purpose of the business or in the community, rather than being driven by the need to maximise profits for shareholders or owners.

Not all social enterprises qualify for relief. For the purpose of SITR, a social enterprise is defined as:

  • a community interest company
  • a community benefit society that is not a charity
  • a charity
  • an accredited social impact contractor
  • any other body prescribed by Treasury Order.

Qualifying for the Social Investment Tax Relief

There are various other criteria that need to be satisfied in order to benefit from the relief, relating to the type of investment, the type of investor, and the need to obtain approval from HMRC.

These conditions include a limit on the size of the social enterprise, so that only businesses with up to 500 employees and gross assets of no more than £15 million before the investment can benefit, along with a need for the organisation to invest the money raised within a 28 month period. In addition, the amount of investment a qualifying SITR can raise is €344,000 over a three year rolling limit (the sterling equivalent is based on the spot exchange rate on the investment date).

On the investor side, the individual cannot be ‘connected’ to the social enterprise, meaning that the investor should not be closely affiliated to the business itself.

Where all of the conditions are satisfied, SITR is potentially available. Advance assurance can be obtained from HMRC to enable the social enterprise to go to investors with confidence that their investment will be able to benefit from the relief.

Finance Bill 2017 Changes

The following changes to the relief were proposed in the 2017 Finance Bill to take effect from 6 April 2017:

  • Placing a limit on the size of the social enterprise so that only businesses with up to 250 employees could qualify.
  • Expanding the list of excluded activities to include all energy generation activities, leasing, providing banking, insurance, money lending or other financial services to social enterprises and operating/managing nursing care or residential care homes.
  • Introduction of an accreditation system to enable SITR investment in affordable nursing and residential care homes in due course.
  • Increasing the amount a qualifying SITR could raise to a maximum of £1.5 million over its lifetime.
  • Extending the length of time the increased limit would be available to seven years after the first commercial sale.

However, all of these proposals were postponed shortly before the Bill was placed before Parliament, to speed up approval of the Bill before Parliament recessed prior to the General Election. It is expected that the proposals will be re-introduced in a future Finance Bill.

What next?

We have seen a great deal of interest in SITR as investors look for opportunities to support communities and good causes that are close to their home and hearts.

We can help both investors and social enterprises apply for the relief, and take the business through HMRC's advance assurance process.

Please contact your usual advisor to discuss the opportunities available for social enterprises to raise funds and obtain additional support through various schemes.

Contact us

Tom Elliott
Tom Elliott
Partner, Head of London Private Clients