Investing for Good

In recent years, there has been significant growth in investors seeking more than just a financial return from their investment; they also want to see a positive social impact arising from it. This goes beyond ‘green’, ‘ethical’ or ‘socially responsible’ investments. It involves a deeper connection with the uses to which money is being put.

Typically, this involves investors lending money to charities and social enterprises, or investing in businesses working to create a positive social outcome – reducing ex-prisoner reoffending rates by providing accommodation, training and work experience, reducing homelessness by providing affordable rental housing, etc.

The classic ‘loan’-based route is the Charity Bond (the first UK retail charity bond – they were launched in 2003 and so aren’t that new), which is very similar in nature to a Corporate Bond but, as a sweeping generalization, pays a lower rate of interest. This is due to the fact that part of the return is the satisfaction of the investor’s desire to support whatever social activity the bond is targeting. These investments, from a financial perspective, stand outside the normal ‘risk v return’ equation. The bonds are for fixed terms, target to pay a fixed level of interest and are expected to return the investor’s capital at the end of the term.

Recognising the contribution that such social investment can make, the Government introduced a specific form of tax relief, Social Investment Tax Relief (SITR), from April 2014. It is possible for investors to obtain as much as 30% tax relief on investments of up to £1 million when buying shares, or shares and loan capital, in qualifying enterprises. As you would expect, given the valuable tax reliefs (including an inheritance tax exemption and CGT benefits), there are stringent rules to be followed and some opportunities can be extremely complex. There’s also the potential for relatively high levels of risk.

A much longer established form of tax relief linked to this sector is ‘Community Interest Tax Relief’ (CITR), which is aimed at investment in disadvantaged areas. It is somewhat more flexible than SITR but offers less relief: 25% spread over five years.

This article should in no way be construed as financial advice or a recommendation to invest. Should you wish to find out more about these types of investments and whether they may be suitable for you, please contact our Financial Planning department on 01772 821 021 or email Lucinda Moylan.

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