UK Eyes Tax Breaks on Social Investment

June 7, 2013 Taxation in UK

English Pound coinsLONDON – The UK is investigating the potential use of tax breaks to encourage investment into social projects.

On May 6th the government of the UK released a new consultation paper on the issue of introducing targeted tax relief for taxpayers making investments into enterprises where the primary objective is to provide a social benefit.

Under current tax rules, only equity-based investments qualify for tax rebates and credits, but social enterprises more commonly rely on unsecured debt financing, meaning that the tax breaks for social investment are poorly targeted

The government is now looking into legislative changes which will broaden the scope of the tax breaks available for investment into social enterprises to include projects seeking unsecured debt financing.

As a further incentive to encourage social investment, the government is also looking at allowing taxpayers to defer payment of any of their personal tax obligations arising from the sale of their assets, as long as those gains are re-invested directly into social enterprises.

Investors who have placed funds in several social enterprises at the same time may also be allowed to offset any losses against projects which drew a profit.

In order to ensure that the proposed tax relief schemes are not abused, the tax breaks would only be granted for investments which are made for at least five years by individuals who are not personally connected or affiliated with the targeted project.

This is not the first move that the UK government has made towards helping facilitate wider investment into social enterprises, having established the world’s first social investment bank Big Society Capital in 2012.

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