News

October 12, 2012

Tax relief boosts community lending projects

Investment in financial institutions that support community and charity projects has jumped 33% from £21.8m in 2008-9 to £28.9m in 2010-11, according to research by accountants Wilkins Kennedy LLP. But more generous government tax relief for these schemes could boost lending further, it says.

Community Development Financial Institutions (CDFIs) are a new breed of lenders that finance those who have been turned down for loans by banks — often charities, community projects, or small local businesses.

CDFIs are typically not-for-profit and provide financing for start-up or working capital, bridging loans, loans for new equipment, or back-to-work loans for those re-entering the workforce after illness or unemployment. They are partially funded by those looking to invest in local projects.

John Howard, partner and head of not-for-profit at Wilkins Kennedy, said: “Community Development Financial Institutions are filling the hole in the lending market left behind by the collapse in traditional bank lending for local projects. They play a valuable role in connecting individuals with money to invest and vital community projects in need of financial support. CDFIs are an easy — and tax-efficient — way for individuals to get their funds to the right projects.”

Investments in CDFIs allow investors to claim 5% of their investment against their tax bill. This tax relief is known as Community Investment Tax Relief (CITR).

John Howard said: “There’s a lot of potential for further investments in CDFIs. The Government could encourage this by offering a more generous relief. Compared to the incentives offered on the Enterprise Investment Scheme (EIS) or charitable donations, the 5% Community Investment Tax Relief is a very small amount. With bank lending for community projects having fallen steadily, it’s even more important that the Government finds ways to help individuals invest in those that are trying to fill the gap left by the banks.”