When it comes to savings and investments, some people might be very familiar with tax reliefs in the form of an ISA allowance, Seed Enterprise Investment Scheme or Social Investment Tax Relief, yet most people probably won’t have heard of Community Investment Tax Relief (CITR).This is a missed opportunity as CITR eligible investments can provide very attractive tax reliefs - offsetting an individual or company’s tax bill by 25% of the value of the investment over a 5-year period.
CITR investment opportunities can only be offered via accredited Community Development Finance Institutions (CDFIs). CDFIs are social enterprises that provide debt finance and business support to underserved communities that are unable to access finance from mainstream sources. The CDFIs prioritise lending to businesses to create employment and safeguard jobs – meaning the on the ground social impact that these kind of investments opportunities deliver to marginalised communities can be truly transformational.
How CITR works in detail
i) Calculating the tax relief
Depending on an investor’s tax situation CITR equates to an annual return of:
Tax Payer Rate. Gross Return
20% income tax rate 6.2%
40% income tax rate. 8.3%
45% income tax rate. 9.1%
17.5% corporation tax 5.8%
So, assuming you are a 45% taxpayer and you invested £10,000 in CITR shares you would be able to offset your annual income tax liability by £500 each tax year for the tax year in which the investment is made and the 4 subsequent years.
In order to achieve the same return as purchasing CITR shares issued by Art Business Loans, you would have had to make investments that returned 9.1% i.e. £10,000 @ 9.1% = £910 less tax @ 45% = £500.
Further information on CITR and how it can be claimed by investors can be also be found here:
ii) The process for claiming the tax relief
You decide how much you’d like to invest in a CDFI
The CDFI will issue a tax certificate to shareholders detailing the size of their shareholding
This tax certificate then needs to be submitted by the investor to HMRC to claim the relief on your self-assessment tax return for each tax year for which the relief is due. However, corporates can claim the relief as part of their corporate tax return for each appropriate accounting period.
