I’m deeply cynical about corporate virtue-signalling, whereby big companies chase good environmental, social and governance (ESG) ratings in order to appear to be doing the “right” thing. Investing where you have a direct impact on a social need strikes me as much more interesting. It is often done by so-called third-way institutions: mutuals, community enterprises and socially-minded corporations, for instance. In this category we’ve seen the emergence of several new institutions, many of them banks, which have tried to develop new products that should appeal to investors with a social conscience.
It was in connection with some of these new investment products that I was introduced to the Community Investment Tax Relief Allowance (CITR). The idea behind this tax relief is admirable. There are many potential investment projects that don’t quite fit the traditional investment definitions. They need to work alongside newer financial institutions that are less profit-orientated and more community-focused. They can produce a return, but they also have an impact that benefits the community.
How it works
The CITR should be a useful tool for these projects. The HMRC website says it “encourages investment in disadvantaged communities by giving tax relief to investors who back businesses and other enterprises in less-advantaged areas by investing in accredited community development finance institutions (CDFIs)”. The relief is available to individuals and firms; it totals up to 25% of the value of the investment in the CDFI and is spread over five years.
The CITR scheme could be especially attractive to higher-rate taxpayers – that 25% relief over five years equates to an annualised return of 3.9%-6.12% (subject to an individual’s utilisation of their personal savings allowance), while for those paying the additional tax rate the net benefit amounts to 6.63%. Note that the relief can also be used by businesses to reduce their tax bill.
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