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Social Investment Tax Relief

The Government introduced SITR in 2014 to encourage investment in social enterprises. Invest up to £1m a year in qualifying shares or loans in SITR-qualifying enterprises to benefit from Income Tax relief at 30% of the amount invested.

The following description of the rules is as they stood immediately following the enactment of Finance (No.2) Act 2017 with effect from 6 April 2017. This is a simplified summary and doesn’t go into all the detail. For more information and before you contact us, we suggest you read HMRC’s published guidance (which is due to be updated).

 

SITR for Investors

You can invest up to £1m a year in qualifying shares or loans in SITR-qualifying enterprises to benefit from Income Tax relief at 30% of the amount invested. You must hold the investment for at least 3 years from the date you invested.

After the qualifying period you may:

  • Benefit from Capital Gains Tax disposal relief on an investment which you dispose of at a profit.
  • Offset losses on disposal of a share investment, either against capital gains or against income.

You may not be connected with the social enterprise by employment, must not have more than a 30% stake, and are subject to some anti-abuse rules. If you already have non SITR shares in the company, you may not qualify for SITR tax relief on new shares.

You can also defer an existing Capital Gains Tax charge if you re-invest the gain in a qualifying SITR investment.

Before you can claim most of these reliefs, HMRC first has to certify that the social enterprise invested in, and the investment, meet all the requirements. Some of the tests have to be met throughout the 3-year qualifying period, or HMRC will recover some or all of the tax relief.

 

SITR for Social Enterprises

To be eligible for SITR investment, a social enterprise:

  • Must have fewer than 250 employees.
  • Must have no more than £15m in assets.
  • Must not be controlled by another company.
  • Must not be quoted on a recognised stock exchange.

The amount of investment that a social enterprise, which is less than seven years old, can raise through SITR is £1.5 million. Older social enterprises can raise up to €344,827 (the exact sterling equivalent is the spot exchange rate on the date of investment) in any 3 year period, taking into account certain other publicly funded support. The money must be used within 28 months for a qualifying trading activity.

Most trades qualify but the company must be trading commercially with a view to a profit. The company doesn’t need to be trading in the UK.

The company may not qualify if a substantial part of the trade includes:

  • dealing in land
  • banking, insurance, money-lending, debt-factoring, hire-purchase financing or other financial activities
  • property development
  • fishery products
  • agricultural products
  • road freight transport for hire
  • providing services to another person where that person’s trade substantially consists of excluded activities, and the person controlling that trade also controls the company providing the services
  • asset leasing
  • receipt of royalties and licence fees
  • nursing homes and residential care homes
  • generation of power or production of fuel

How we can help

We can advise on eligibility and can liaise with HMRC on your behalf. We can apply to HMRC in advance of the social enterprise receiving investment, for a written opinion as to whether a proposed investment would be likely to meet the requirements (usually known as “advance assurance”).

Once a social enterprise has had investment, we can make the statutory approval application to HMRC. We can also advise if you are having problems with HMRC in relation to SITR.