Budget 2015: 30% tax relief for social venture capital trusts

More money could flow to social enterprises from smaller investors through a new social venture capital trust vehicle, which is likely to offer 30% income tax relief.

The 2015 budget statement, published on 18 March, contained more details about the scheme which was originally proposed in the chancellor’s Autumn Statement of December 2014.

In a briefing about the social investment aspects of the 2015 budget, the government said: “The aim of the social venture capital trust is to increase participation in social investment among retail investors who want to invest smaller amounts than are generally needed for direct investment, and benefit a variety of organisations.”

The government proposes to base the social venture capital trust scheme on the existing venture capital trust scheme “in order to maintain consistency across the tax system and because venture capital trusts are familiar to investors and their advisers”.

Venture capital trusts pool their investors’ money to back a portfolio of fledgeling enterprises. They are considered relatively high risk, but offer tax relief for investors of up to 30% and profits are usually paid as tax-free dividends. Investors can commit up to £200,000 a year. Venture capital trust managers usually take a hands-on approach to help the investee businesses to grow.

Big Society Capital, which aims to grow the UK’s social investment market, welcomed the proposals. Its strategy and market development director Simon Rowell said: “Establishing robust social venture capital trusts will help introduce many new individuals to social investment and signficantly increase the funding available to charities and social enterprises.

“We look forward to working with the venture capital community and government to help get this legislation working.”

No timescale has been committed for the introduction of social venture capital trusts. The government briefing said: “Officials will talk further to the sector about how the social venture capital trust will be delivered before proceeding to legislation in a future Finance Bill.”

The 30% rate of income tax relief is subject to clearance from the EU to ensure that it complies with state aid rules which aim to prevent organisations gaining unfair market advantages through taxpayer-funded resources.

Photo credit: Howard Lake