Private investors could claim tax relief through social impact bonds

Toby Eccles of Social Finance, which created the bonds, is considering ways of opening investment to more people

Toby Eccles
Toby Eccles

Investors might be able to claim tax relief for investing in social impact bonds, according to Social Finance, the social investment organisation that created them.

Under a social impact bond, a specially created organisation representing a group of charities agrees to reduce a social problem that costs money for a public sector body, such as reoffending among released prisoners. Investors fund charities’ activities and receive repayment based on the outcomes they generate. For example, if the charities reduce reoffending by more than an agreed amount, the investor makes a profit. If the intervention fails, the investor loses the money.

Until now, investors in social impact bonds have been either charitable foundations or wealthy philanthropists.

But Social Finance is considering trialling a structure that will allow private individuals to invest money in social impact bonds and allow them to claim tax relief through the enterprise investment scheme, which offers income tax relief for investors in small companies.

Toby Eccles, development director of Social Finance, said it was difficult to build a model that would allow private investors using EIS to invest alongside charitable trusts and foundations.

"While this means that there might be potential to use existing tax breaks to benefit social investment, it also demonstrates the need for structures that are designed with social investment in mind," said Eccles.

He said that at the moment, there was no clear time frame for when such a product might be launched.

He said that the new structure would allow the investment of much smaller amounts of cash than previous programmes.

"We wouldn’t have to work with high net worth individuals," he said. "This would be open to the mass affluent."

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