Government to introduce new tax relief for social investment

Nick O'Donohoe of Big Society Capital welcomes the move to widen the scope of the relief, as announced in the Autumn Statement

Nick O’Donohoe
Nick O’Donohoe

The government will introduce a new tax relief for social investment in April 2014, according to today’s Autumn Statement.

The announcement made today says that the government intends widen the scope of the relief, compared with measures originally proposed in a consultation in June this year.

It also says that the government will produce a "road map" for social investment in January.

"These measures include seeking state-aid clearance for a larger tax-relief scheme, looking at options for supporting indirect investment and making changes to regulations for community interest companies to make them more attractive to investors and social organisations," it says.

The document says that the government recognises the important role played by social organisations in solving social problems, developing communities and contributing to economic growth.

"From April 2014, the government will introduce a new and innovative social investment tax relief to encourage individuals to invest in social organisations," it says.

The original consultation was criticised for being too narrow.

It proposed that investment in charities, community interest companies and community benefit societies would attract a relief similar to that provided by the Enterprise Investment Scheme, and would allow individual investors to claim back up to 30 per cent of their investment against tax when they make equity-like investments in charities.

The new scheme is likely to keep the same structure, but will expand the relief to cover social impact bonds, is likely to also allow unsecured loans to be covered by the relief, and is likely to allow relief on much larger investments than previously proposed – a measure that will require the government to seek state-aid approval, according to Nick O’Donohoe, chief executive of the social investment wholesaler Big Society Capital.

O'Donohoe said draft legislation giving more detail about the relief would be published on 10 December. He said he was pleased by the changes made.

"Based on discussions with the Treasury, we feel very optimistic that this is going to be a bold step forward," said O’Donohoe. "More still needs to be done – what we have at the moment is very high-level – but we’re happy with the basic principles being proposed.

"It’s good that the government is seeking state-aid approval. We don’t know what limits they will set yet for the maximum size of investment that is covered by the relief, but we know they’re much larger than originally proposed."

But he said he was disappointed that the Treasury looked likely to apply the relief only to direct investments, rather than investments made through social investment funds.

Luke Fletcher, a senior associate at the law firm Bates Wells Braithwaite, said that many social enterprises would not be included because they did not have an asset-locked legal model.

"Companies limited by guarantee and cooperatives are outside the scope of the relief," he said. "Some will be unhappy about this omission."

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