Community Investment Tax Relief
Overview
The Community Investment Tax Relief (CITR) scheme is designed to encourage investment in disadvantaged areas. It gives investors who invest in accredited Community Development Finance Institutions (CDFIs), tax relief on the equivalent of 5% of the amount invested per year, for up to five years.
CITR has raised £77m of private finance which would not otherwise have been secured, and could fully realise its potential with strategic changes to certain procedures and terms.
The concept of such a scheme to drive private investment to capitalise the CDFI sector and thereby deliver credit to social enterprises, charities, voluntary groups and businesses in disadvantaged communities fits wholly within the ethos of the Big Society and is perfectly placed to redress public spending cuts.
Opportunities for enhancement
There are two main areas where improvements to CITR would help to ensure greater success: investor capability and requirements for CDFIs to lend invested capital:
It is only bank-deposit-taking CDFIs – which have raised over 70% of the total to date – that are able to optimise CITR in its current form. These investors enjoy the benefits conferred by the UK Bank Deposit Guarantee. Direct investment into non-deposit-taking CDFIs must be made in the form of an unsecured investment, with all but the largest and most established CDFIs often considered too risky. In addition, it is only income or corporation tax which benefit from the tax relief. At the moment, many banks, originally envisaged to be significant investors, would not benefit from the tax relief due to the low amount of tax they are paying. Including other types of tax, for example VAT, payroll tax and the new bank levy, would attract a wider pool of investors.
CDFIs have reported that many of the requirements placed upon them with regards to the terms of disbursing funds raised using CITR can be difficult to meet and burdensome to document. In particular, requiring on-lending an average of 75% of investment from the third year onwards may unduly compel CDFIs to make lending decisions based on this requirement rather than on loan applicant suitability and diligent portfolio management. In addition, customers eligible to receive loans from investment raised using CITR are somewhat narrowly drawn and must go only to those meeting certain social or geographic criteria, hampering CDFIs from making lending decisions driven by their own mission or customer demographics.
Recent updates
25 March 2011
Community Investment Tax Relief campaign a resounding success!
With the scheme up for renewal in 2012, there has been some uncertainty regarding its future.
However, following a concerted campaign led by CDFA, George Osborne announced the following in his the Budget speech of 23rd March 2011:
“In July last year, we set up the Office of Tax Simplification to provide independent advice on how to reduce the complexity of the existing system. Following their recommendations, I can announce today that this Budget abolishes no fewer than 43 complex reliefs. I have decided not to follow their advice to abolish the Community Investment Tax Relief – and instead I encourage people to take it up.”
Osborne’s announcement signals strong Government support for the CDFI sector despite of previous recommendations for CITR to be abolished. Work now begins on devising a scheme which will encourage greater investment in CITR by interested individuals and corporate bodies.
To read more about the campaign please visit the campaign page.
Resources:
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BIS website information on CITR
CITR Guide for investing into CDFIs
Guide for CDFIs utilising CITR
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