• news-banner

    Expert Insights

Social Investment Tax Relief (SITR)

Introduced in 2014, and expanded in 2017, Social Investment Tax Relief (SITR) allows individuals to help social enterprises grow by offering a tax relief on investments.

Under SITR an individual can subscribe for shares in, or lend money to, a social enterprise and claim 30% income tax relief. If, for example, an investor lends £1,000 to a social enterprise, the real cost to the investor is only £700. But the social enterprise receives £1,000 of much needed funding to help it grow in a sustainable manner and achieve more positive social impact.

Charities, community interest companies, certain kinds of community benefit societies and so-called “accredited social impact contractors”1 qualify as “social enterprises” for the purposes of SITR. Social enterprises that have been generating sales revenues for less than 7 years can raise up to £1.5m under SITR. Older enterprises can raise up to around £280k-£290K2.

Here are the tax reliefs that an investor, under SITR, may enjoy:

  • Income Tax Relief – 30% of the amount invested is deducted from the investor’s income tax liability for the year in which the investment is made.
  • Capital Gains Tax Deferral – if a chargeable gain is re-invested into a SITR-qualifying investment, the CGT liability on that gain is deferred until the SITR investment is disposed of.
  • Tax Free Gains – gains made on disposal are free of capital gains tax. But this only applies to capital gains – e.g. on sales of shares. Interest and redemption premium on debt would be taxed as income and are therefore not tax free.

Investments in shares may qualify for exemption from inheritance tax if they have been held for at least two years before death. Investments by way of loans will not, however, qualify for any exemption from IHT.

Investments in shares may qualify for loss relief against income or capital gains tax, but debt will not qualify for loss relief against income tax and only qualifies for relief against capital gains in certain circumstances.

Investors looking to make investments under SITR may invest in individual social enterprises, or via a SITR “fund”. SITR funds work in exactly the same way as an unapproved EIS fund, namely:

  • Each investor signs some form of investment management agreement which gives a mandate to the fund manager to invest the investor’s money into social enterprises eligible for SITR.
  • Investors’ monies are invested over a period of time (usually spanning two or three tax years).
  • Each time a SITR-qualifying investment is made by the fund, each investor is allocated a proportion of the investment and tax relief is then claimed on that investment.
  • The investment is typically held in the name of a nominee on behalf of each of the investors in the fund.
  • Unlike EIS, there is no concept of an “approved” SITR fund. Tax relief can only therefore be claimed as and when qualifying investments are made via the fund – there is no tax relief when an investor initially commits monies to the fund. However, an investor may be able to carry back an investment to the previous tax year in order to accelerate the claim for income tax relief.

The Chancellor’s decision in the Spring Budget to extend SITR until April 2023 means that the immediate prospect of losing it altogether has been avoided for the time being. The two-year extension has been welcomed by many as a positive step. Big Society Capital, along with Social Enterprise UK, Resonance and Co-ops UK, had campaigned to retain and develop SITR. It still has significant potential to stimulate investment in charities and social enterprises, providing much-needed, affordable investment to these organisations. The extension does, however, beg the question of the kind of reforms currently needed to enable SITR to achieve its full potential. Now that a decision about SITR has been made, there is the possibility that it may result in adjustments to the scheme to render it more beneficial such as:

  • Allowing a wider range of charities and social enterprises to be eligible by removing the restrictions that exclude larger charities.
  • Allowing a wider range of activities by extending the accreditation scheme for nursing and care homes to cover other excluded activities.
  • Taking advantage of the opportunities offered by the post-Brexit landscape (the government is currently consulting on a replacement state aid regime, offering the hope that SITR may have greater flexibility in the future).

1 Newly-incorporated private companies that enter into social impact contracts and are accredited by DCMS.
2 The exact cap is calculated by reference to the exchange rate with the Euro, and the highest UK rate of capital gains tax and will therefore fluctuate.

Our thinking

  • Women in Leadership: Planning for the future

    Sarah Wigington

    Events

  • In-House Insights: Legal operations at work - how to do more with less

    Megan Paul

    Events

  • It’s not just a High Court decision, it’s a successful M&S High Court Decision

    Sophie Willis

    Quick Reads

  • The Financial Times quotes Sophie Dworetzsky on potential drawbacks of changing or scrapping UK non-dom rules

    Sophie Dworetzsky

    In the Press

  • Take-aways for UK firms from ESMA’s consultation on reverse solicitation

    Cheryl Tham

    Insights

  • Leasehold and Freehold Reform Bill: Where are we now?

    Laura Bushaway

    Insights

  • City AM quotes Dominic Lawrance on the potential scrapping of non-dom rules in the Spring Budget

    Dominic Lawrance

    In the Press

  • The Grocer quotes Kelvin Tanner on the impact of upcoming visa changes on the hospitality industry

    Kelvin Tanner

    In the Press

  • The Daily Telegraph quotes Nick Hurley on the legalities of asking for childcare employment in lieu of rent

    Nick Hurley

    In the Press

  • FCA Authorisation: Do I need to be FCA-regulated?

    Richard Ellis

    Insights

  • Post-sale planning: The Maximisation and Protection of Private Wealth following a Business Sale or Exit Event

    Tabitha Collett

    Insights

  • City AM quotes William Garner on FCA plans to 'name and shame' firms under investigation

    William Garner

    In the Press

  • Supreme Court confirms injunctions can be granted against newcomers

    Harriet Durn

    Insights

  • Charles Russell Speechlys ‘Client Conversations’ welcomes one of the best strikers of all time and greatest players in Premier League history, Alan Shearer CBE

    Simon Ridpath

    News

  • Edward Robinson and Charlie Searle write for FT Adviser on key considerations when an individual inherits company shares

    Edward Robinson

    In the Press

  • Hugh Gunson and Karin Mouhon write for Tax Journal on a recent Upper Tribunal decision - HMRC v The Taxpayer

    Hugh Gunson

    In the Press

  • 'Saltburn': How the Catton family could have protected the Saltburn estate and could Oliver's inheritance still be contested? (Part 2)

    Grace O'Leary

    Quick Reads

  • 'Saltburn': How the Catton family could have protected the Saltburn estate and could Oliver's inheritance still be contested? (Part 1)

    Grace O'Leary

    Quick Reads

  • Pregnancy and maternity discrimination in the workplace

    Michael Powner

    Insights

  • Client Conversations Podcast: Alan Shearer CBE

    Simon Ridpath

    Podcasts

  • Sifted quotes Victoria Younghusband on a boardroom disagreement involving Klarna and Sequoia Capital

    Victoria Younghusband

    In the Press

  • The Telegraph quotes Rose Carey on new visa salary rules

    Rose Carey

    In the Press

  • Trade Credit Insurance – Protection, Economic Instability and Increased Demand

    Mary Barrett

    Insights

  • The ongoing fight against fakes

    Charlotte Duly

    Quick Reads

  • Beware of not obtaining a court order when settling your finances

    Julia Mauricio

    Quick Reads

  • Planning essentials case update: when can an enforcement notice against an unlawful use also require the removal of related structures?

    Sadie Pitman

    Quick Reads

  • Vulnerable elders : a harrowing story and the lessons which need to be learnt

    Sarah Wray

    Quick Reads

  • Digital Markets, Competition and Consumers Bill: Will new consumer protection rules restrict access to Gift Aid?

    Verity Heath

    Quick Reads

  • Home buyers and sellers hit by cyber-attack

    William Marriott

    Quick Reads

  • International Relocation: The Parent Trap 25 years on ...

    Joshua Green

    Quick Reads

  • Autumn Statement provides little comfort for farmers and landowners

    Hannah Connors

    Quick Reads

  • Top Tips to Building your Brand - Women in Chancery

    Katelyn Silver

    Quick Reads

  • What next for residential property? Autumn Statement Update

    William Marriott

    Quick Reads

  • Potential parental disputes about school fees should a Labour government add VAT to fees

    Sarah Jane Boon

    Quick Reads

  • Dubai Court of Cassation Extends Arbitration Agreement Across Subsequent Contracts

    Peter Smith

    Quick Reads

  • Labour government - potential change to cohabitation laws?

    Sarah Anticoni

    Quick Reads

  • Good news for users of the Madrid System

    Charlotte Duly

    Quick Reads

  • Michael Gove's announcement on transitional period for two staircase requirement for new residential buildings

    Melanie Hardingham

    Quick Reads

  • Removal from EU tax blacklist: what this means for British Virgin Islands

    Oliver Cooper

    Quick Reads

  • Navratri at Charles Russell Speechlys

    Arjun Thakrar

    Quick Reads

Back to top