New tax reliefs for social investment – our thoughts…

NII_icons_RGB-03Here at Nesta Impact Investments we are pleased to hear about the new tax reliefs for social investment promised in the Autumn Statement. It’s been glaringly obvious for some years that we needed to bridge the gap between tax reliefs on charitable donations and small company and venture capital reliefs. If taxation can be used to incentivise socially useful behaviour, isn’t starting a social enterprise at least as good for the UK as starting a small private company?

Nesta’s has been researching the topic of social investment tax reliefs for some time. We first published a report on the topic in 2010, with the Centre for Study of Financial Innovation, and in 2011 we did a significant report on high net worth individuals and the mass affluent which found tax relief to be a significant factor when deciding to make a social investment. Last year, our work with financial advisors illustrated how a tax relief would get social investments on their radar.

We still need to see the detailed proposals, including what restrictions there will be. But what might this mean in practice for social sector organisations?

  1. Will it attract more money? In the long run yes it will, once people become familiar with the relief. But remember, social investment is not revenue; it’s a repayable capital investment that isn’t going to replace lost grants, donations or government contracts.
  2. Will it change the way we do business? If a Social Impact Bond tax relief is in place, then opportunities to take on payment by results contracts with external financing should grow.
  3. What will be the impact on existing donations? There’s some chance that at the margins people will invest rather than donate; but social investment tax relief will be most attractive to the most affluent in society who will be advised to give and invest.
  4. What other benefits might there be? Just like small company reliefs, this tax benefit may well attract angel investors who can bring their skills as well as their money to support social enterprises.

By Joe Ludlow - Director, Nesta Impact Investments