By Philanthropy UK
Highlights
- CITR is a tax incentive to investors in community development finance institutions (CDFIs).
- CDFIs lend and invest in deprived areas that cannot access mainstream finance.
- The total relief is worth up to 25% of the value of the investment.
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The Community Investment Tax Relief (CITR) scheme, set up under the Finance Act 2002, offers a tax incentive to investors in accredited community development finance institutions (CDFIs). It is run jointly by HM Revenue & Customs (HMRC) and the Department for Business, Enterprise & Regulatory Reform (BERR).
CDFIs lend and invest in deprived areas and markets that cannot access mainstream finance. They provide financial services to enterprises and individuals, with the aim of achieving both financial and social returns.
What is the CITR Scheme?
CITR is available to any individual or company with a UK tax liability investing in an accredited CDFI where the investment is held for at least five years. The taxpayer, who can either be an individual or company, receives a relief to offset against their income or corporation tax liability of 5% of the amount invested in the year the investment is made, and a further 5% in each of the subsequent four years.
The total relief is worth up to 25% of the value of the investment. This tax relief is in addition to any interest or dividend paid by the CDFI.
ExampleAn individual subscribes £10,000 for shares in a CDFI on 1 June 2008. CITR would reduce the individual’s income tax liability for the tax year 2008/9 and for each of the four subsequent tax years by £500 (5% of £10,000). Total income tax reduction over the five years would be £2,500. |
What requirements must investors meet to qualify for CITR?
- Your investment must be in a CDFI accredited by BERR.
- Your investment must be made on or after the CDFI’s accreditation date.
- Your investment must be either in shares, securities, or a loan.
- You must be the beneficial owner of the investment.
- Your investment must be for a minimum of five years.
- Your investment must not be subject to arrangements such as insurance, indemnities or guarantees that protect you against the risks attached to the making of that investment.
Case study: Key Fund Yorkshire and Tiger11By Community Development Finance Association Tiger11 is a new development trust in South Leeds funded by Key Fund Yorkshire (a CDFI), Sharing The Success (Leeds LEGI) and commercial finance. Based in the heart of Beeston and Holbeck, an area ranked in the bottom 2% of the Index of Multiple Deprivation, Tiger11 was founded by local resident Jeremy Morton who worked tirelessly with other residents to establish the Community Development Trust. Tiger11’s first major project was the re-development of the local landmark building Hillside Primary School in Beeston into a sustainable community building providing a ‘Catalyst Centre’, office space, workshop space, community/conference space and a café/restaurant. In May 2007, Tiger11 received a loan of £50,000 from the Key Fund for support in paying salaries, temporary office costs, office equipment and marketing. The group had found it extremely difficult to find funding from other sources as it was a relatively new organisation with no track record and was seen as a high-risk investment. The Key Fund loan allowed essential development work to take place, ensuring that some valuable streams of private finance were unlocked. The Hillside redevelopment is now nearing completion with building works expected to finish in 2008, meaning that Tiger11 is getting closer to its vision of a thriving building that will become a ‘community anchor’. |
Recommended resources
- The Community Development Finance Association (CDFA), the trade association for CDFIs, has published a guide for investors, including examples and case studies, which is freely available on its website.
- Detailed information is also available from the websites of HMRC and BERR.
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