Social investing is on the rise, and not just in the UK but globally. Is this because we are becoming more socially aware, or is it that this type of investment is producing attractive financial returns? The good news is yes we are becoming more socially aware and yes, social investments are producing very healthy returns.
A recent report has shown that social impact investment is on par when measured against investments only concerned with financial returns.
It also found that whilst the impact investing industry is in an early stage of development it is poised for growth. The research by Cambridge Associates and the Global Impact Investing Network found that market rate returns of 6.9% are attainable in impact investing, which compares very favourably against the figure of 8.1% for the "comparative universe".
The report, Introducing the Impact Investing Benchmarks shows a total social impact investment value of $10.6bn in 2014, with a predicted growth of 16% in 2015.
So how can you get involved?
Social Investment Tax Relief (SITR)
If you invest in a qualifying social enterprise you can claim SITR. This scheme has been designed to attract private investment to the social sector by offering attractive tax reliefs to individual investors.
You can invest up to £1m annually in a qualifying social enterprise. This can be in one individual enterprise or it can be spread over a number of different social enterprises.
Investment can be made through either equity (purchase of shares) or through new qualifying debt investments.
Your investment will qualify for up to 30% income tax relief in the year of investment. So, for every £10,000 you invest during 2015, you can reclaim £3,000 from your 2015 tax liability.
Capital gains tax can be deferred where the gain is reinvested in shares or debt investments which also qualify for SITR Income Tax relief.
If your investment has qualified for tax relief through the SITR scheme it will also quality for Capital Gains disposal relief. /blog/social-investment-is-it-for-me
Social Impact Bonds (SIB)
A SIB is a way of financing a Payment by Results (PBR) contract. Under this type of contract, the desired outcomes are predetermined and are documented, with government payment made only if the service provider achieves these agreed results. This means that the initial costs of delivering services must be provided upfront which creates a problem for many potential providers, such as community enterprises and charities.
A SIB helps to bridge this gap, enabling the socially aware investor to fund the provision of a service delivered by a social enterprise on the basis that they will receive a return on their investment from government, if and when the service delivers the results specified in the agreement. Because payment is based on output rather than on the process, there is greater flexibility for innovation and increased freedom to demonstrate solutions that work.
SIBs qualify for SITR as long as they have received SITR status which means that your investment will qualify for up to 30% income tax relief
As noted above, tax on a capital gain arising from the investment can be deferred, and capital gains disposal relief may also apply. /blog/the-benefits-of-social-impact-bonds
This is another exciting scheme which the government have committed to introduce advising that they "will legislate for Social VCTs in a future Finance Bill”. The aim of the Social VCT is to increase participation in social investment amongst investors who want to invest smaller amounts than are generally needed for direct investment.
It is expected that the rate of income tax relief for investment in a Social VCT will be 30%.
Investors will pay no tax on dividends received from a Social VCT.
Investors will pay no capital gains tax on disposals of shares in Social VCTs./blog/social-vct-do-we-need-another-scheme
If you are interested in investing, or attracting investment into your organisation, and would like our help please contact us at Sapphire Capital Partners LLP. We are happy to help.