Social Investment Tax Relief (SITR)

With many individuals now looking for ways to help their community, investment in community schemes is becoming increasingly popular. Individuals making an eligible investment in a social enterprise, such as a community investment company, may be able to take advantage of generous tax breaks under Social Investment Tax Relief (SITR). SITR was introduced from 6th April 2014 to help social enterprises to attract external funding by offering tax relief to investors.

SITR may be applied to eligible investments made during the period from 6th April 2014 to 5th April 2019 in the form of new qualifying shares or new qualifying debt.

Various conditions must be met by both the social enterprise and the individual in order for the individual to qualify for the relief, including a three year minimum holding period, and certain restrictions apply, however the tax breaks offered to the investor under the relief can be very attractive.

Income tax relief is provided to the investor via a reduction in their UK income tax liability in the amount of 30% of the amount invested, up to a maximum investment of £1 million. The relief can be claimed either in the tax year in which the investment was made or carried back to the preceding tax year. As the legislation was not introduced until 2014/15 it is not possible to carry relief back before that year.

Capital gains tax relief can take two forms: holdover relief and disposal relief.

Holdover relief enables the chargeable gains arising on the disposal of other assets to be deferred if the gains are reinvested in a social enterprise within the relevant time frame, up to a maximum of £1 million. This treatment effectively freezes the gains until such time as the investment in the social enterprise is disposed of, cancelled, redeemed or repaid at which time the gain will come back into charge.

Disposal relief provides that any gain arising in respect of the disposal of the investment in the social enterprise will not be chargeable to capital gains tax providing that all of the relevant conditions have been met, including the minimum holding period.

It should be noted that income tax must be paid in the normal way on any dividend income or interest income received from the investment.

Some changes to expand SITR with effect from 6th April 2017 were announced in the Autumn Statement on 23rd November 2016 and the government have indicated that they will undertake a review of SITR within two years of its enlargement.

Rennie Welch LLP accepts no liability on the basis of this article and detailed advice should be sought based on specific circumstances. If you require advice or assistance in connection with this or any other taxation matter, please contact Lynn Miller at Rennie Welch on 01573 224391 or by email at lynn.miller@renniewelch.co.uk