The government has revealed details of the social investment tax relief, which aims to encourage investors to consider the social impact of their investments as well as the financial returns.
Following a period of consultation, the government said the tax breaks will apply to investment in charities, community interest companies (CIC) and community benefit companies (bencom). It will also apply to investment in social impact bonds where the special purpose vehicle is a company limited by shares accredited by a government-run accreditation scheme. Social co-operatives will be able to apply to register to become a bencom.
The minimum investment period has been reduced from five years to three; the range of eligible activities has been extended and organisations that have fewer than 500 employees will be eligible.
The rate of income tax relief is expected to be announced at the 2014 budget.
The trade body the UK Sustainable Investment and Finance Association (UKSIF) has welcomed the make-up of the measures, saying the government’s commitment will encourage the investment needed for social businesses and charities to address social problems.
Head of government relations Caroline Escott said, “Social investments and social enterprises have a vital part to play in supporting the move towards a more sustainable economy, with business models that provide not only a financial return to investors but also support local communities.”
The tax relief investors will receive when they invest in social enterprises and social impact bonds were announced in last week’s autumn statement. Two ethical financial advisers spoke to Blue & Green Tomorrow about the tax relief ahead of George Osborne’s address.
Julian Parrott, partner and financial adviser at Ethical Futures, said, “I feel that the time has come to create a wider participation from retail investors in the growing social impact investing space.
“The growth in this sector sits very well with the government’s ‘big society’ agenda but is currently the preserve of charities, foundations and high net-worth philanthropists.”
Nick O’Donohoe, chief executive of Big Society Capital, commented that the Treasury needed to continue listening to social organisations and potential investors in order to ensure the tax relief worked well and had the desired impact.
However, concerns have been raised that the tax relief will ignore Companies Limited by Guarantee (CLG) with a social mission. Social Enterprise UK, the trade body for the social economy, has said this is a common business form among social enterprises.
Director of business and enterprise Nick Temple, who is also chair of the Social Investment Forum, said, “It’s a shame that the proposed measures will leave some social enterprises out in the cold.
“We look forward to working with government on both shaping and implementing the roadmap ahead to ensure it works for all social enterprises as well as investors.”