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This helpsheet explains how individuals can claim tax relief under the Community Investment Tax Relief (CITR) scheme. It also gives some background information about the scheme and highlights some of the factors that may affect an investor’s eligibility to make a claim. You can find more information in the Community Investment Tax Relief manual.
Background to the scheme
Tax relief under the CITR scheme is available to individuals or companies who invest in accredited Community Development Finance Institutions (CDFIs). This helpsheet is intended for individual investors. A list of accredited CDFIs is prepared by the Department for Business, Innovation and Skills.
To qualify for tax relief the investment must be a:
- subscription for shares in, or securities of, the CDFI
- loan to the CDFI
- deposit with a CDFI that is a bank
For each investment that you make under the scheme, the CDFI will issue you with a Tax Relief Certificate.
Once you’ve received the Tax Relief Certificate, and provided that the rules of the scheme are satisfied, you can claim Income Tax relief of up to 5% of the invested amount for each of 5 tax years starting with the year in which the investment is made. This gives a total tax relief of up to 25% of the invested amount. If for any year you don’t have enough Income Tax liability to make full use of the relief, any unused relief will be lost. This applies to investments made on or before 5 April 2013.
For investments made on or after 6 April 2013, any relief unused in a particular year can be carried forward to later years as long as the year is within the 5-year investment period.
CITR is a relief against Income Tax, it can’t be used to reduce Capital Gains Tax.
You invest £10,000 in a CDFI on 1 June 2016. Tax relief is due on £10,000 at a rate of 5% = £500. This relief is available for the tax year 2016 to 2017 (the tax year in which the investment was made) and for each of the next 4 tax years.
Investment as in example 1 but in 2016 to 2017 you’re only able to use £300 of the relief. £200 is therefore carried forward. If your tax liability in 2017 to 2018 is £1,000, you’ll be able to claim CITR of £700 (the £500 annual plus the £200 carried forward).
You made an investment in 2015 to 2016 of £10,000 but were only able to use £300 relief in 2015 to 2016. You have £200 unused relief to carry forward. You can use all of this plus your annual relief of £500 in 2016 to 2017. To claim this on your tax return you should enter a sum of £14,000 as invested, the gross amount of £700 relief given at 5%. In the following year your investment should again be shown as £10,000 so the annual £500 relief is given.
How to claim tax relief
You can’t make a formal claim to relief for an investment until you’ve received a Tax Relief Certificate from the CDFI and the tax year to which the claim relates has ended.
Enter the ‘invested amounts’ on which relief is claimed in box 3 in the ‘Other tax reliefs’ section on page Ai 2 of the Additional information pages of your tax return. The amount to be entered is the amount on which relief is claimed for investments made during the tax year to which the return relates and any investments made during previous tax years on which relief continues to be due. You must also give us details about each investment in box 21 on page Ai4.
You invest £10,000 in a CDFI on 1 June 2012 and a further £5,000 on 1 June 2013. For each investment relief is due for the tax year in which the investment is made and the following 4 years. The entries for each year in box 3 of the ‘Other tax reliefs’ section on page Ai 2 would be as follows
|2012 to 2013||2013 to 2014||2014 to 2015||2015 to 2016||2016 to 2017||2017 to 2018|
The amounts entered on the tax return include any amounts on which you’ve received relief by way of an increase in your PAYE code or a reduction in a payment on account.
You don’t need to send the Tax Relief Certificate with your completed tax return. But keep it safe. We may ask to see it if we make enquiries about your tax return. Only one Tax Relief Certificate is issued by the CDFI for each investment.
What is the ‘invested amount’
The amount of tax relief due to you under the CITR scheme is worked out by reference to the ‘invested amount’. In the case of investments that are shares or securities, the invested amount is the amount you subscribed.
Where the investment is a straightforward loan to a CDFI (or a deposit with a CDFI that is a bank) the invested amount will in most cases be the amount of the original advance or deposit. But if you’re repaid part of the loan (or withdraw part of the deposit) during the 5 years following the investment, your tax relief will be reduced. This is to make sure that you don’t get the benefit of tax relief on amounts that have been returned to you by the CDFI.
Whatever type of investment you’ve made, your relief may be reduced if you receive some form of value, financial advantage or benefit from the CDFI.
Adjusting PAYE codes and payments on account
Although you can’t formally claim CITR until after the end of the relevant tax year, there are 2 ways you can effectively get the benefit of the relief within the current tax year. In either case, you’ll still need to make a formal claim to relief after the tax year has ended.
If your employer takes off tax under PAYE you can write to HM Revenue and Customs (HMRC) to ask for a change to your current year’s PAYE code to include an amount to reflect the CITR that is expected to be due. This adjustment will reduce the amount of tax that your employer takes off under PAYE.
If you make payments on account under Self Assessment then you can write to HMRC to ask us to reduce those payments to take account of the amount of CITR that is expected to be due. Please note that if the payments on account finally due are greater than the amounts paid, we’ll charge you interest on the difference.
Factors affecting eligibility to claim relief
A CDFI won’t issue you with a Tax Relief Certificate unless an investment satisfies the rules of the scheme as they apply to the CDFI. But there are conditions of the scheme that you, the investor, must satisfy. These include the requirements that:
- you must be the beneficial owner of the investment
- there must be no arrangements under which you’re protected from the risks that would otherwise attach to the making of the investment
- the investment must not be part of a tax avoidance scheme
Online forms, phone numbers and addresses for advice on Self Assessment.