In the March 2015 budget, the government announced details of the new Social Venture Capital Trust (Social VCT) scheme. As yet, no timescale has been committed for the introduction of this scheme with government advising that they "will legislate for Social VCTs in a future Finance Bill”.

But do we really need another scheme?  

As we have previously noted the Government recognises the immense challenges facing today’s society and has actively been encouraging growth, innovation and solutions to our ever increasing social problems through a serious of measures, such as launch of the Big Society, introduction of Social Impact Bond (SIBs) /blog/the-benefits-of-social-impact-bonds, Social Investment Tax Relief (SITR) and now Social VCT.

These measures have been taken because the Government recognizes the value of the social enterprise sector, advising that it contributes circa £55 billion to the economy and employs over two million people and that social investment has a crucial role in delivering change to communities across the UK and the world.

So the answer to our question is a resounding yes, we do need private investment in the social sector, and this new scheme will certainly help to do this.

How does this scheme differ?

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. This type of investor is referred to as a ‘retail investor’.

With the more recent move towards the payment by results (PbR) approach, social enterprises are measured on output, such as a 20% reduction in vandalism, social investment now offers a very real way forward, ensuring that each and every pound we invest has a demonstrable purpose.

This will allow you as an investor the chance to invest in causes which you care about whilst taking advantage of the generous tax benefits associated with the scheme.

And how will the new scheme work?

The government have declared that the Social VCT scheme will be based on the existing Venture Capital Trust (VCT) scheme, with adjustments made to take account of the nature of the social investment market.

It is expected that:

• the rate of income tax relief for investment in a Social VCT will be 30% (this is subject to EU State aid clearance, and is in line with SITR /blog/social-investment-is-it-for-me).
• Investors will pay no tax on dividends received from a Social VCT and will pay no capital gains tax on disposals of shares in Social VCTs.
• Social VCTs will have the same excluded activities as SITR.
• No holding in a single organisation may exceed 15% of the value of all the Social VCT’s investments.
• Social VCTs will be required to list on the London Stock Exchange Main Market.
• Social VCTs must not retain more than 15% of income derived in that accounting period.
• Social VCTs will have two-year investment time limit.

We at Sapphire Capital Partners will keep you up to date with the latest developments in this new scheme. In the meantime, if you have any questions or would like more information, please contact us. We are happy to help.