Higher social investment tax relief investment limit announced today drives social investment further | Big Society Capital

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Higher social investment tax relief investment limit announced today drives social investment further

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The journey towards helping individuals address the financial needs of social organisations has sped up considerably today. In today’s Autumn statement, the Chancellor’s announced that Government intends to seek approval for a significant increase to the size of investments that are eligible under Social Investment Tax Relief (SITR) to £5m per organisation per year from its previous limit of approximately £290,000 over three years. This is what charities and social enterprises asked for and Government has clearly listened. This should be a big boost to the sector, which could help address persistent capital needs, and potentially transform the nature of the social investment market.

What does the Autumn statement announcement say?

1.166 Enterprise and the growth of successful businesses is a key driver of productivity. To continue to support entrepreneurs and developing businesses the government will allow gains that are eligible for Entrepreneurs’ Relief (ER) and deferred into investment under the Enterprise Investment Scheme (EIS) or Social Investment Tax Relief (SITR) to benefit from ER when the gain is realised, encouraging successful entrepreneurs to invest in these companies. The government will also increase the annual investment limit for SITR to £5 million per annum, up to a total of £15 million per organisation, from April 2015 and will also consult further on a new relief for indirect investment in social enterprises.

2.55 Social investment tax relief (SITR): enlarging the scheme – The government will seek EU approval to increase the investment limit to £5 million per annum per organisation up to a maximum of £15 million per organisation and to extend the relief to small-scale community farms and horticultural activities. The changes will come into effect on or after 6 April 2015, subject to state aids clearance. The government will make special purpose vehicles for subcontracted and spot-purchase social impact bonds eligible for SITR through secondary legislation in autumn 2015. The government will consult in early 2015 on introducing a Social Venture Capital Trust (VCT) in a future finance bill. (Finance Bill 2015) (18)

What does this announcement mean?

Our discussions indicated that the investment size limit was the single most important barrier to gathering greater interest amongst the social and financial communities. We already have two ground-breaking SITR deals announced under the existing investment limits, and are aware of more in the pipeline. Now that we know Government’s intention however, we expect much of the current passing interest in SITR to turn into real engagement to understand how SITR can work:

  • Bigger charities and social enterprises should now stand up and take notice and incorporate tax relief into their future financing plans – our discussions reveal that a whole new range of charities would become interested at the higher level;
  • Social investment funds should see how they could advise and manage SITR products and funds – last week BSC hosted a roundtable with various social investment funds to discuss the technical elements of the relief and it already showed the new creative ways for relief to be delivered;
  • The mainstream venture capital community and current EIS and VCT investors should now see SITR as a strong complement to their existing investments, and start to consider how to add SITR products to their portfolio – our cooperation with the BVCA showed that the scheme expansion will attract a whole new range of investors with deep pockets. 

Whilst these changes still have to gain European Commission approval, we think there is now a real chance that SITR can raise the almost half a billion pounds of new capital for charities and social enterprises originally forecast by research by Worthstone. The commitment to consult on introducing a social impact venture capital trust structure will also make this possible.

What happens next?

Government needs to continue to diligently work on the technical detail of the legislation over the next few months to get it working right. This includes setting up an inclusive and effective new consultation on social Venture Capital Trusts to boost the indirect investment opportunities for SITR. With these underway, we feel that the theory is now coming together.

However, as ever, the big challenge with any new policy is to turn that theory into practice. BSC calls on all interested institutions and individuals to now consider how SITR can work for them and to help generate ideas, opportunities and momentum to make it happen. BSC is committing to deliver more technical support through its consultant Neil Pearson, providing example documentation of social investment transactions once finalised, and provide a hub for all information and best practice relating to the social investment tax relief on our website to spread awareness of the relief and make it easier to operate.

In conclusion

We are pleased that the Government has decided to take such a bold step to level the playing field for social investment. Social investment is moving towards the mainstream and today represents an important milestone in this journey. There is further road to travel however the pace is gathering for using finance to make an impact for millions of lives across the country.

You can read more in our press release responding to the announcement.

Last updated | 
3 December 2014