InvestmentsNov 12 2015

Tax limit crucial to development of social investing

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Tax limit crucial to development of social investing

Increasing the Social Investment Tax Relief investment limit is crucial to the development of social impact investment, according to Intelligent Partnership.

Research from Intelligent Partnership has found that of the 22 managers surveyed 32 per cent are already developing SITR products or are looking to do so depending the approval of the higher investment limit.

Among those who were most advances in developing SITR products, there was agreement that fund sizes need to be bigger, with the majority of those surveyed claiming they would be unlikely to make an SITR qualifying investment at the £250,000 limit.

Daniel Kiernan, Intelligent Partnership’s research director, said:“This is the single most important change that could be made in order to encourage the development of SITR retail investment products among this group of managers – but an update from HM Treasury suggests this change is at least a year away.”

Evita Zanuso, financial relationships director at Big Society Capital, said: “It is encouraging to see the growing appetite amongst EIS managers for developing SITR products but it is clear that the current limit is a key barrier.”

Simon Chisholm, investment director at Resonance, added: “It is clear that there will soon be a healthy diversity of products and providers in the market, and that will be further stimulated by the lifting of the EU cap on investments above £250k next year.

“The case for investing in social enterprises is strong - as well as their direct impact on a wide range of difficult social problems, social enterprises can have special relationships with customers and unique skills and experience, which allow them to address new markets making them very sustainable businesses to back.”

Under current EU rules governing the initial introduction of SITR, individual organisations can receive a maximum of £250,000 government subsidised investment within a three year period.

Individual investors can invest up to £1m in a number of social investments.

Over the course of the next year, the SITR boundaries will increase to £5m a year and £15m in total.

Danny Cox, head of communications and chartered financial planner at Hargreaves Lansdown, said: “The issue here is find firms developing these products who have a good track record of dealing with the tax complications of these products and at the same time delivering decent returns.

“Unfortunately there are very few EIS from established players who deliver good returns. The SITR product that I have seen is targeted an internal rate of return of 8 per cent which looks pretty ambitious.”