A substantial increase in the limit for investments under the social investment tax relief scheme, as announced in the Autumn Statement today, has removed the single biggest barrier to greater uptake of the relief, according to the social investment wholesaler Big Society Capital.
SITR, which is designed to give charities and social enterprises better access to finance through investments from individuals, came into force in April.
It allows investors to claim back 30 per cent of the value of these investments against their tax bills, up to a maximum of £1m in investments in a year.
Today, George Osborne, the Chancellor of the Exchequer, announced that organisations may receive up to £5m of SITR-eligible investments in any one year, and up to £15m in the organisation’s lifetime.
This is a substantial rise from the existing limit of less than £300,000 over a three-year period. Subject to European Commission approval, this will come into force in April.
The government will also extend SITR eligibility to all community energy generation done by qualifying organisations, and will seek EU approval to extend this relief to community farms and horticultural activities. Both should happen in April.
It will also introduce legislation in the autumn to make special-purpose vehicles for subcontracted and spot-purchase social impact bonds eligible for SITR.
The statement provides for the creation of a new online process for investors and companies that qualify for SITR, and its sister schemes the enterprise investment scheme and the seed enterprise investment scheme
Osborne also announced that the government would consult early next year on introducing a new social impact venture capital trust structure, which would create a tax relief for indirect investment in social enterprises.
A statement from Big Society Capital said that the government had listened to the needs of the sector and welcomed the increased limits.
It said: "This should be a big boost to the sector, which could help to address persistent capital needs and transform the nature of the social investment market. Our discussions indicated that the investment size limit was the single most important barrier to gathering greater interest amongst the social and financial communities."
Also announced in the Autumn Statement was the closure of the government’s review of tax charges on loans from what are known as close companies to individuals.
Currently, these tax charges might catch some charitable trusts that accept loans from their subsidiaries. John Hemming, chair of the Charity Tax Group, said that even though the review was closed, government would still consider the issue of charities being unfairly caught out by anti-abusr rules.
He said: "They are closing the formal review, but ministers are aware of our concerns, and HM Revenue & Customs and HM Treasury will continue to discuss the issue with us to look for a resolution."