Sector organisations have welcomed the pledge by the Chancellor George Osborne in his budget to set the rate of social investment tax relief at 30%.
The relief, which follows the structure of the existing Enterprise Investment Scheme (EIS), will now be much more attractive to High Net Worth individuals who are already making venture capital investments, bringing much needed new finance to charities and social enterprises.
The relief will apply to investments made after 6 April.
Big Society Capital, the world's first social investment bank, welcomed the commitment made by the Chancellor.
Research commissioned by Big Society Capital estimates that the social investment tax relief could unlock nearly half a billion pounds in finance for charities and social enterprises over the next five years.
Big Society Capital will produce “how to” guides for investors; work with providers to drive the creation of products which will use the tax relief; and finally be working with legal experts to create generic investment documentation to help investors save on costs.
Nick O’Donohoe, chief executive of Big Society Capital, said: “The Chancellor has today given a very welcome pledge to set the rate of social investment tax relief at a level that we believe will encourage a more investors to put more money into social enterprises.
"The introduction of venture capital tax reliefs in the UK 20 years ago led to individuals investing £14 billion into small growing businesses. But finance is changing. Now is the time for investors to seize this opportunity to invest for social good and benefit from tax relief that is equivalent to existing schemes.
"To increase the impact of the social investment tax relief, Big Society Capital is developing “How To” guides for new investors and social enterprises. These are being written with leading industry experts and are due to be published in April. We are also working with potential developers of the first social investment tax relief products in order to demonstrate the range of uses of the tax relief.
"Finally we will be partnering with legal experts to develop easily adaptable investment documentation to make the relief easier to use.”
Research commissioned by Big Society Capital estimates that the social investment tax relief could unlock nearly half a billion pounds equivalent in finance for charities and social enterprises over the next five years.
The Social Economy Alliance has also welcomed the new 30% tax relief-rate for social investment.
The group - made up of more than one hundred organisations, including the UK's Social Investment Forum, says the measures have the potential to unlock billions and fuel the UK's growing 'social economy' - made up of social enterprises, cooperatives and trading charities.
The UK is home to a growing social investment market and a growing wave of social ventures and social innovations.
Together they are creating a wave of bottom-up, sustainable economic growth. But a spokesperson warned that an historic opportunity will be wasted if the Government fails to promote it among UK investors.
According to the Alliance, Britain's social economy is growing fast, thanks to a wave of new and maturing social ventures, and there is demand from investors and social businesses for greater financial support and infrastructure.
Social Economy Alliance spokesperson and chief executive of the Social Investment Business Jonathan Jenkins, said: “This is excellent news for Britain's social economy. Many thousands of new and maturing social ventures need finance to grow and reach their true potential.
"The Social Investment Forum has fought long and hard for this tax relief, which should bolster the social investment market and get more investors pumping capital into social enterprises and charities.
“But this will be a missed opportunity if it’s not fully promoted by Government, who should work with the sector to market and promote the tax relief, so more businesses and investors can improve their social impact. This relies on the collaboration of the whole financial advisory community.
“It’s a critical time for the social investment market. The world is increasingly relying on social economy organisations to tackle some of its most pressing problems. But, like all businesses, they need capital and investment to survive."
The Social Investment Forum is a collective voice to influence social investment policy. Its members include the CDFA, Big Society Capital and The Social Investment Business.
The Social Economy Alliance is calling for a raft of measures to grow and support a more social economy for the UK, including a Community Reinvestment Act, extension of the Social Value Act, more support for micro and social enterprises, and community ownership of infrastructure.
The Alliance also called for the new Garden City initiative to be developed for maximum social value, and for alternative models to be encouraged in house-building, including more housing co-operatives and shared ownership.
John Low, chief executive of CAF, commented: “It’s great news that the Government has confirmed a 30% tax relief on social investment, the first time there has been a tax relief specifically for those who invest to produce social benefits. this has the potential to bring in millions of pounds in investment for charities and social enterprises.
"We need to use this new tax relief to promote social investment as an everyday part of the financial services industry so we can grow the charities and social enterprises that can make such a huge difference to people across the country.”
Matt Mead at Nesta Impact investments, added: "By setting the tax relief for social investment at 30% this starts to level the playing field and makes investing in charities and social enterprises as attractive as investing in small private companies.
"While it’s shame that this will initially only apply to quite small levels of investment and be restricted to certain types of organisations the government are clearly committed to changing this over the next eighteen months.
"More importantly, this gives a clear signal that impact investing has huge potential as a market."
