Many investors have benefited from renewable energy investments through tax efficient investment vehicles such as Venture Capital Trusts (VCTs), Enterprise Investment Schemes (EIS) and Seed EIS, where they received tax benefits as well as predictable strong returns using Renewable Obligation Certificates (ROCs) and Feed in Tariffs (FiTs).
From April 6th these investments will be disqualified from utilising EIS, SEIS and VCTs. Luckily investors will be able to access renewable energy investments through Social Impact Tax Relief (SITR) and the introduction of a new Social VCT, pending EU state aid approval. There will be a six month transition period for the expansion of SITR before eligibility is withdrawn from EIS, VCTs and SEIS.
SITR Qualifying Investments
Community energy generation projects, by qualifying companies, will be eligible for 30% Income Tax relief, Capital Gains hold-over relief and Capital Gains disposal relief after a minimum three year holding period. SITR is based on the format of EIS, so investors and adviser should feel comfortable with the process.
There are of course some major differences in the types of companies that qualify for SITR versus EIS. SITR companies must be either a community interest company (CIC), a community benefit society with an asset lock or a charity, which can be set up as a company or a trust. However, the companies can be much larger than those qualifying for EIS – a maximum 500 full-time equivalent employees, compared to 250 in EIS. The qualifying gross assets levels are the same, at £15m and £16m pre/post share issue. Unlike EIS however, SITR allows for debt as well as equity investments, where the debt is unsecured.
Currently the promotion if SITR cannot be advertised publicly, but after 13 April 2015, SITR will be allowed to be promoted in the same was as EIS funds, which will open up the space for a much larger group of retail investors.
Social VCTs
The 2015 Budget outlined another way in which investors will be able to access renewable energy investments – through the introduction of Social VCTs. Similar to the way that SITR is designed based on EIS; Social VCTs will be designed around the current VCT scheme.
The proposed company qualifying criteria will be the same as for the Social Impact Tax Relief companies and the tax relief and structure will be the same as that of present day VCTs, with a minimum 2 year holding period.
Conclusion
EIS and VCTs have both enjoyed massive amounts of investment since their inception, and the government clearly wants to encourage the same enthusiasm for investment with more social impact opportunities in the UK. It is also encouraging that renewable energy, which has been a driver for so much success in the EIS and VCT space, will be accessible through these new routes and will hopefully bring about similar levels of interest in the social impact sector.