Consultation on tax relief for social investment promised by Treasury

Proposal announced in today's Budget could happen by April or May, according to sector sources

A consultation on tax relief for investment in social enterprises was announced in today’s Budget by George Osborne, the Chancellor of the Exchequer.

He said in his speech before parliament that Nick de Bois, the Conservative MP for Enfield North, and others had put forward proposals to boost investment in social enterprises.

"We will introduce a new tax relief to encourage private investment in these social enterprises," said Osborne.

Sector sources said the Treasury had promised a consultation in April or early May.

The Budget documents published alongside the Chancellor’s speech said the outcome of this consultation would be announced in the next autumn statement, with a view to introducing legislation in the Finance Bill in 2014.

But they did not give any details about what the relief will entail or how much it will be worth.

A tax relief for social investors has been a key demand of the charity and social investment community for a number of years, and Big Society Capital, the £600m social investment wholesaler, has said it sees it as a key priority.

A recent report published by BSC and the City of London Corporation suggested a tax relief similar to the one planned by the government could be worth £480m over the next five years.

Matt Robinson, director of strategy at BSC, said his organisation had been involved in negotiations with the Treasury over what a tax relief might look like.

He said his organisation believed that any relief must have three key principles: it should cover only investment in organisations with asset locks, including charities, community interest companies and community benefit societies; it should apply to individual rather than corporate investors; and it should apply to ‘risk capital’ investments, where the investor’s capital is not guaranteed by the charity.

"We’re reasonably confident the Treasury will follow the conditions we’ve discussed with it," he said.

Previous proposals by bodies including the National Council for Voluntary Organisations and the social investment specialist Social Finance have urged the government to reform existing schemes such as the Enterprise Investment Scheme, which gives investors tax breaks for buying shares in small businesses. A document published by the NCVO last year said charities, which cannot issue shares, should receive the same benefits.

David Hutchison, chief executive of Social Finance, said that such a tax break "would level the playing field to allow social enterprises to offer the same tax advantages as for-profit enterprises."

Cooperative investment cap lifted

The government has announced plans to raise the limit on how much individuals can invest in cooperatives.

Since 1994, the amount of money one person or organisation can invest in a cooperative, known as ‘withdrawable share capital’, has been capped at £20,000. The limit on this investment has not changed since that date. Cooperatives have said the low limit restricts their ability to attract investors.

The government said in the Budget document that it would consult the cooperative sector in the summer on the appropriate limit.

Changes to community investment tax relief

The government has also announced that previously announced changes to community investment tax relief will go ahead as planned.

CITR gives investors who put money into community development finance institutions a tax relief of up to 25 per cent over five years. However, it has been little used because of stringent restrictions on how it is distributed.

The government will increase the amount of time organisations have to spend money raised through the relief, which it hopes will make it easier to use.

However, it will also place limits on the amounts of tax relief an investor company can obtain in any three-year period, the Budget document said.

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