Charities and Social Investment


The last few years have seen an increase in the number of different ways that charities have sought to obtain new sources of income and investment.

This has been coupled with an increasing awareness of the needs or desires of growing numbers of investors to see a social as well as a financial return on their investment. A recent report by the Charities Aid Foundation highlighted that social investment is an increasingly important consideration for those under the age of 40. It is therefore a potentially important source of finance for charities.


There are essentially two new sources of social investment; crowd-funding and social investment funds.


Charities are now able to obtain investment through sophisticated crowd-funding platforms. With the increased use of the internet and advances in technology and social media, crowd-funding is gaining momentum. There are a number of platforms available: JustGiving, Buzzbnk and Crowdfunder to name just a few. For charities it can provide a relatively cheap source of finance for specific projects usually by way of a loan or a straight donation. For investors/donors, there is the certainty that the project will only go ahead if the target can be reached. Crowd-funding platforms often work with the charity to understand the funding needs and fund raising targets, as well as how the results will be measured in terms of social impact. In this way there is an element of due diligence but any donor should be aware that this is a largely unregulated market.


The attractiveness for the individual is that if the donation/investment is by way of loan, that loan can be recycled a number of times. If the funding is purely a gift, the donor will obtain gift aid on the donation.


Any charity considering crowd-funding should plan its campaign well in advance. It should pick a reasonable target level of funding have a soft launch and a clear pitch to funders. Communicating progress is key to ensure the funding target can be reached. The charity should also communicate follow up on the project and the impact made as that will then attract
future funding.

Social investment funds
Increasingly sophisticated players are moving into the social investment field. The Government has also seen the potential for social investment and introduced from 6 April 2014 a social investment tax relief (“SITR”). SITR applies to qualifying investments in the form of either shares or qualifying investment bonds in social enterprises. 

Benefits for the investor
The investor obtains a 30% tax relief on all qualifying investments in the year or in the previous year (if the investment is made after 6 April 2015), and there is no gain on the sale of the investment if it is held for three years.

More importantly, there is capital gains deferral relief if any capital gain made on or after 6 April 2014 is invested in a qualifying social investment.

What social enterprises qualify?
Enterprises must be a charity, a community interest company or a community benefit society with an asset lock. 

The enterprise should have less than 500 full time employees at the time of the investment and have gross assets less than £15million before the investment and less than £16million after.  The company should not be controlled by another company or a person connected to that company at the time the investment is made or for three years after.

Finally, the enterprise must carry on a qualifying business for three years after the investment and the funds must be used within 28 months of the investment. As the tax relief granted falls under the state aid rules, the amount of investment was limited to €200,000 per year. The Government is consulting on increasing this to €5million. Therefore this will increase the amount of investment available to larger social enterprises. 

The benefits to the charity is that it gives access to a new form of investment which can be useful for specific projects. However, there are still sustainability and repayment issues to consider as most social investors are expecting some form of return. It cannot be considered a replacement to primary sources of funding such as grant funding or primary purpose trading.

Social investment, like other forms of finance, requires significant documentation and information to be provided to the investors upon application, and there is a necessary amount of due diligence to be undergone. However, it is suggested that improvement in governance, internal management and financial discipline may arise from this new source of finance.

With financial resources and Government funding being ever tightened, charities have to continually consider new forms and new ways of improving outcomes for their beneficiaries and of ensuring sustainable finance. As a consequence, this new form of social investment will only increase.

For more information, please contact Mark Hart or your usual Blick Rothenberg contact.