Proposed social investment tax relief likely to be of limited use, says Charity Finance Group

In its reply to a consultation on the plans from the Treasury, the CFG says that almost no existing type of social investment would qualify for the relief as proposed

A proposed social investment tax relief is likely to be of "severely limited" use in its current form, the Charity Finance Group has said in its response to a joint consultation by the Treasury and the Department for Business, Innovation & Skills.

The consultation, which closes tomorrow, proposes that individual investors be allowed to make social investment tax relief investments of up to £1m a year in regulated social sector organisations – charities, community benefit societies and community interest companies. Investors will be able to claim back up to 30 per cent of their investment against their income tax or capital gains tax liabilities.

The CFG says in its response that almost no existing social investment would qualify for the relief as it is currently proposed.

"While social investment should by no means be seen as a panacea to the sector’s funding challenges, it has the potential to be genuinely transformational for some charities," the response says. "However, as the proposals currently stand, we are of the view that uptake of this important relief will be severely limited."

The CFG’s response says the government should scrap proposals that the total allowable investment into an organisation should comply with state aid rules – meaning that an organisation could receive only €200,000 (£171,000) over three years and would not be able to receive other funding that counts against state aid limits.

It says the government must also allow "simple unsecured loans" to qualify for the relief. The current proposals say loans would qualify only where there is a specific link between the return on the investment and the success of the organisation.

The CFG also says that more focus needs to be put on stimulating demand for social investment. It has proposed that, alongside the tax relief, the government carry out a programme of activities that include a comprehensive programme of early stage support for small charities that are looking to expand, more funding for programmes such as the Investment and Contract Readiness Fund, and research into what type of social investment is most needed by charities.

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