One of the key questions we get asked when advising on the three main investing tax schemes is  'what are the differences between SITR, SEIS and EIS?', namely Social Investment Tax Relief  ("SITR"), the Enterprise Investment Scheme ("EIS") and the Seed Enterprise Investment Scheme ("SEIS").  

There are many similar characteristics between SITR, EIS and SEIS, such as the rules regarding connected persons and subsidiary entities, and only minor differences in the definition of qualifying trading activities.

However there are some key differences. SITR is different due to:

• the type of enterprise which qualifies for SITR.
• the investment, both debt and equity investment is allowed.
• the tax relief  - income tax relief is at 30%.

What type of enterprise qualifies for SITR?

To qualify for SITR the company must be a social enterprise. SITR  guidance defines social enterprises as charities, community interest companies and certain types of community benefit companies. The underlying requirement is for the company to have an asset lock to ensure that public benefit of funding is maintained and cannot be used for private benefit.

Other eligible criteria includes a requirement that the social enterprise must not have more than 500 employees or more than £15m in gross assets.

As with SEIS and EIS, the social enterprise must be engaged in a qualifying trading activity. This means that a charity with a wholly or majority owned trading subsidiary is eligible, as long as funds raised are invested in that trading activity.

What type of investment qualifies?

SITR is available for both debt and equity investment in social enterprises. The eligibility of debt finance makes SITR radically different from SEIS and EIS, both of which are only available for equity investment.

How does tax relief differ?

Income tax relief for SITR is the same as that of EIS, at 30%, whilst SEIS attracts the higher rate of 50%.

All three schemes provide potential CGT free gains on growth in investments provided they are held for the for the minimum holding period. Additional gains on disposal of any asset can be can be deferred into SITR and EIS, but not SEIS investments.