Community Investment Tax Relief (CITR) offers a tax incentive to investors who fund businesses, social or community projects in disadvantaged neighbourhoods.
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Investors do not put money directly into projects, but instead finance community development finance institutions approved by the Department for Business, Innovation & Skills (BIS).
The institution then funds the projects from a pool of funds.
Tax relief is available on the investment as income tax or corporation tax relief spread over the five-year life of the investment at a rate of a 5% tax reduction each year – so the total tax relief should add up to 25% of the value of the investment.
For individuals, the relief is calculated over the tax year, while companies have the relief spread over their accounting period.
How CITR tax relief works
If the investor has no tax liability or a liability that is less than the relief in a tax year, the relief is lost as it cannot be carried back or forward.
HM Revenue & Customs (HMRC) gives an example of how the relief works:
An investor buys £10,000 of shares in a community development finance institution in the 2013-14 tax year. CITR reduces the investor’s tax liability by 5% or £500 each year, giving a total relief of £2,500 over five years.
Any income from CITR is tax-treated in the same way as interest or dividends.
The investment can take the form of an equity stake, subscription for securities or a loan.
CITR investment conditions
Some conditions apply to qualify for tax relief – for instance:
- The shares must be fully paid up at the time of investment and without any rights for early redemption
- The full loan must be advanced at the date of investment or drawn down within 18 months. The loan terms must not allow switching the debt into any other form of investment that can be drawn down within five years of the start of the investment.
CITR has a minimum loan amount of £1,000 but no maximum – although community development finance institutions have limits on how much they can raise.
Investors considering CITR can see a list of approved community development finance institutions on the BIS web site
CITR is not a new tax relief – the scheme was introduced in Budget 2002.
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