Community Investment Tax Relief (CITR) is designed to incentivise investments in underprivileged areas by offering tax relief to investors supporting businesses through Community Development Finance Institutions (CDFIs). This initiative aims to stimulate economic development and growth within disadvantaged communities.
Eligible Investments for CITR
Investments that qualify for CITR include:
- Subscriptions for shares in a CDFI
- Subscriptions for securities of a CDFI
- Loans to a CDFI or deposits with a CDFI, assuming the institution operates as a bank
What is a Community Development Finance Institution (CDFI)?
CDFIs are entities that provide financial assistance to businesses and non-profit organizations within disadvantaged communities. According to HMRC, CDFIs encompass:
- Community Loan Funds: These funds support community regeneration projects and businesses.
- Micro-Finance Funds: Offer small-scale loans, often at favorable interest rates, to very small businesses, including sole traders.
- Social Banks: Financial service providers focusing on profit while achieving social or environmental objectives.
How CITR Works
Community Investment Tax Relief allows an investor or a company to claim tax relief amounting to up to 25% of the investment over five years, which translates to up to 5% per year. To benefit from the maximum relief, the investment must be retained for at least five years.
This relief is applicable against Income Tax or Corporation Tax for limited companies but cannot be used against Capital Gains Tax on profits from the investment.
Claiming CITR
To claim CITR:
- File a Self Assessment Tax Return: The process involves including details of your eligible investment on your tax return.
- Tax Relief Certificate: You will need to obtain a Tax Relief Certificate from the CDFI as evidence of your investment and eligibility for tax relief.
The CITR scheme encourages investment into areas that might otherwise struggle to attract financial support, contributing to community upliftment and fostering social and economic development. By participating, investors not only gain a financial incentive but also contribute positively to societal growth.
