Budget 2014: Investment tax relief to boost social enterprises

Chancellor George Osborne made a number of announcements during the budget that will impact on investment and personal finance, including a tax relief for investment in social enterprises. Other measures include greater ISA flexibility and the launch of a Pensioner Bond.

Osborne declared the government was backing social enterprises and announced a social investment tax relief at a rate of 30% in his speech. The announcement has been well received by the industry.

Big Society Capital estimates that the social investment tax relief could unlock nearly half a billion pounds in finance for charities and social enterprises over the next five years.

Nick O’Donohoe, chief executive of Big Society Capital, commented, “The chancellor has today given a very welcome pledge to set the rate of social investment tax relief at a level we believe will encourage more investors to put more money into social enterprises.

“The introduction of venture capital tax reliefs in the UK 20 years ago led to individuals investing £14 billion into small growing businesses. But finance is changing. Now is the time for investors to seize this opportunity to invest for social good and benefit from tax relief that is equivalent to existing schemes.”

The Social Economy Alliance also welcomed the announcement and said it has the potential to fuel the UK’s growing ‘social economy’. However, the organisation warned that an “historic opportunity” would be wasted if the government fails to promote the tax relief among UK investors.

Jonathan Jenkins, spokesperson for the Social Economy Alliance and chief executive of the Social Investment Business, said, “This will be a missed opportunity if it’s not fully promoted by government, who should work with the sector to market and promote the tax relief, so more businesses and investors can improve their social impact.

“It’s a critical time for the social investment market. The world is increasingly relying on social economy organisations to tackle some of its most pressing problems. But, like all businesses, they need capital and investment to survive.”

Osborne also announced that the government would dramatically increase the “simplicity, flexibility and generosity of ISAs”. This will be achieved by merging the cash and stocks ISAs to create a single New ISA (NISA). The annual individual limit for ISAs will also be raised to £15,000, up from the previous limit of £5,760 or £11,520 for a stocks and shares ISA. The limit for a junior ISA also increase to £4,000 a year.

Kevin Mountford, head of banking at MoneySuperMarket, said the simplification can “only spell good news” and allow investors to choose between stocks and shares or cash ISAS, or even a mix of the two.

He added, “The new rules will also allow for peer-2-peer (P2P) lending to be included within a tax-free ISA allowance which will be particularly beneficial as rates on P2P investment are generally higher than with standard cash savings account, although a date for when P2P will be included in the ISA wrapper has not been confirmer.”

Crowdfunding site Abundance Generation has previously spoken to Blue & Green Tomorrow about the impact such a move could have on the green economy and how it could allow investors to align their savings with their personal ethical values.

A new Pensioner Bond will also be launched, offering returns higher than equivalents currently on the market, in order to support pensioners that have saved. At least a million pensioners are expected to benefit from the bonds.

The cap on premium bonds will also be lifted for the first time in a decade from £30,000 to £40,000 in June, and to £50,000 next year.

Further reading:

Budget 2014: new £1 coin revealed

Budget 2014: Osborne to deliver budget for ‘resilient’ economy

Budget 2014: Osborne must lay out vision for greener UK, says Lord Stern

Budget 2014: government must ‘turbocharge’ green deal and energy efficiency efforts

My budget 2014 wishlist: Julian Parrott, ethical financial adviser