Social Investment Tax Relief (SITR) is a great way to help causes that you care about whist receiving the generous tax benefits associated with this scheme, so the returns you receive are both social and financial. To read more about this scheme follow our link /blog/social-investment-is-it-for-me
So, who can invest? This question is probably easier to answer if we turn it around and phrase it as “who can’t claim SITR on their investment in a qualifying company?” Before you can invest there are some conditions which the SITR investor has to be able to meet to be able to support their claim for tax relief.1. The first condition we will look at is your relationship with the social enterprise.
There are rules about the relationship between you and the social enterprise in which you are investing. You, or any individual who is your associate, must not:
• be a partner or a trustee or the social enterprise, or a subsidiary of the social enterprise,
• be a paid director, partner or employee of the social enterprise, or a subsidiary of the social enterprise,
• for one year before the investment to the third anniversary of the investment, you must not own more than 30% of the social enterprise’s ordinary share capital, loan capital or voting rights (Note that any investments by your associates are taken into account in calculating this 30% limit).
‘Associates´ are defined as “business partners, spouses, civil partners, parents and grandparents, children and grandchildren, or the trustees of any settlement where the investor is a settlor or beneficiary”.
2. The second condition which you must consider is the terms on which you have invested.
Please note that:
• your investment won’t qualify for tax relief if it is part of a tax avoidance scheme, for example, if you agree to invest in someone else’s social enterprise and they agree to invest in yours so that you can get round the 30% rule, your investment will not qualify for tax relief.
• you must invest for a period of three years and there must not be any arrangements in place for the investment to be sold during that three year period.
• you must not make any special arrangements in connection with your investment, e.g for the social enterprise to sell valuable assets during the period of your investment.
• your investment won’t qualify if you buy it using a loan, and that loan has special terms that would not apply to a normal commercial loan.
3. And the final condition which you must consider is the type of investment. For your investment to qualify for SITR it must be made by way of:
• shares which the social enterprise has issued to you, and which you have fully paid for in cash at the time of issue.
• qualifying debt which will generally take the form of a loan which the social enterprise has to repay along with some form of interest. The debt can not be secured on any assets, and must rank behind other debts of enterprise.
If you are interested in investing, or attracting investment into your organisation and would like our help, please contact us at Sapphire Capital Partners. We are happy to help.