SITR was set up in 2013-14 tax year. It is very similar to another HMRC initiative called the EIS which was set up in 1994.
The tax reliefs are the same with 30% income tax relief, hold over capital gains tax deferral relief and capital gains tax exemption on disposal. It creates minimal confusion on the application of SITR.
Regarding SITR, you can invest either directly in your own name, or have a nominee invest on your behalf. There are rules about the closeness of the relationship between you and the Social Enterprise.
You, or any individual who is your associate, must not:
- Be a partner or a trustee or the social enterprise or of a subsidiary of the social enterprise
- Be a paid director or employee of the social enterprise or of a subsidiary, partner or partner of a subsidiary of the social enterprise
- During the period from 1 year before the investment to the third anniversary of the investment, own more than 30% of the social enterprise’s:
- Ordinary share capital
- Loan capital
- Voting rights
The type of investment
As an investor, you can claim SITR if you’ve invested in:
- 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
The exact definition of what a social investment is has not yet been defined by legislation, However, it is clear that certain charities, CICs, and sports clubs may qualify automatically. As a guide, social enterprises should:
- Be autonomous of state
- Have a clear social and/or environmental mission set out in their governing documents
- Generate the majority of their income through trade
- Reinvest the majority of their profits
- Be majority controlled in the interests of the social mission
- Be accountable and transparent
Anyone who is uncertain can apply for pre-assurance prior to engaging in the scheme.
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