Earlier this week I attended a BlackRock media event focused on what the future might hold for the financial services profession, looking forward to the year 2025. A key topic highlighted during the discussion was the increased adoption of ‘values based’ investing, where clients (in particularly Millennials) look to invest in line with their values. Trends indicate that this style of investment is set to become the norm, in the not too distant future.

EQ Investors specialise in this particular area, so we asked them to talk us through Social Investment Tax Relief (SITR). Read on to learn what SITR is, how it operates, and if you have time watch the short video case study. It’s truly heartwarming.

Note that SITR schemes are classified by the FCA as Non Readily Realisable Securities, which means they can only be promoted to investors who seek regulated advice, are classified as High Net Worth or Sophisticated investors or are prepared to certify that they will invest less than 10% of their net investable assets in such securities. If your client(s) fall into any of these categories, please contact EQ Investors for further information.

What is SITR?

Social Investment Tax Relief is the newest tax relief for private investors. It operates in a similar way to the Enterprise Investment Scheme but is open to social enterprises that have a defined and regulated social purpose.

What is a social enterprise?

A social enterprise is an organisation that applies commercial strategies to maximise improvements in human and environmental well-being, which may include maximising social impact alongside profits for external shareholders.

There are already hundreds of social enterprises in the UK and the BBC has reported that social enterprises in the UK are thriving. A good example is the Freedom Bakery, which was set up by Matt Fountain in 2015 to provide employment opportunities for ex-offenders in Scotland and lower the reoffending rate (watch the video below for more).

 

Most SITR investments are likely to be made in the form of interest bearing loans

 

How does SITR work?

Social enterprises can issue unsecured debt finance or equity. The maximum that can be raised by an organisation is approximately £250,000 over three years (technically €344,827 under European state aid rules). Organisations must be less than 7 years old and have fewer than 250 employees.

Most SITR investments are likely to be made in the form of loans bearing a fixed rate of interest. This interest will usually be distributed to investors, net of 20% tax and will constitute taxable income. Since the loans are unsecured investors should expect there to be some defaults and so a diversified portfolio is essential.

We expect most SITR schemes will be marketed as ‘funds’ but they will actually be discretionary investment agreements which allow the manager to allocate each investor’s subscription across a number of projects. A tax certificate will be issued after each investment is made and will apply to the tax year in which the investment is made.

Available SITR schemes

There are currently a limited number of SITR offers open for investment:

Na Social purpose Regional focus Closing dates Raised / sought Min. investment
Resonance Bristol SITR Fund Dismantling poverty Bristol Open £1.3m /£5m £25,000
A pioneering social impact investment fund aimed at helping to dismantle poverty in Bristol and the surrounding area by investing in social enterprises.

 

For more information, please contact EQ Investors or watch the Resonance Bristol SITR Fund video.

 


This article was created by DISCUS to outline SITR and sourced from EQ Investors. You can find out more about EQ Investors and their discretionary investment services here ›