This help sheet explains how individuals can apply for tax relief under the Community Investment Tax Relief (CITR) system. It also provides some background information about the system and highlights some of the factors that may affect an investor’s eligibility to make a claim. For more information, see the Guide to Community Investment Tax Relief.
1. Background of the scheme
Tax breaks under the CITR system are available to individuals or companies that invest in accredited Community Development Finance Institutions (CDFIs). This help sheet is aimed at individual investors. A list of the accredited CDFIs is compiled by the Ministry of Enterprise, Energy and Industrial Strategy (BEIS).
To qualify for a tax break, the investment must be one of the following:
- Subscription for shares or securities of the CDFI
- Loan to the CDFI
- Deposit with a CDFI, which is a bank
For every investment you make under the program, the CDFI will issue you a tax relief certificate.
Once you have received the tax relief certificate and the rules of the system have been met, you can apply for income tax relief of up to 5% of the invested amount for each of the five tax years starting with the year in which the investment was made. This results in a total tax break of up to 25% of the amount invested.
Any relief not used in a given year can be carried forward to later years as long as the year is within the investment period of 5 years.
CITR is an income tax relief and cannot be used to reduce capital gains tax.
1.1 example 1
You invest £ 10,000 in a CDFI on June 1st, 2020. Tax relief is due for £ 10,000 at 5% = £ 500. This relief applies for the tax year 2020 to 2021 (the tax year in which the investment was made) and for each of the next 4 tax years.
1.2 Example 2
Investment as in example 1 but in 2020-2021 you can only use £ 300 of relief. Two hundred pounds are therefore carried forward. If your tax liability is £ 1,000 in 2021-2022, you can claim a CITR of £ 700 (£ 500 per year plus £ 200 carried forward).
1.3 Example 3
You made an investment of £ 10,000 in 2019-2020 but were only able to use £ 300 in relief in 2019-2020. You have £ 200 in unused relief to push forward. You can use all of this plus your £ 500 annual relief in 2020-2021. To make this claim on your tax return, you should enter an amount of £ 14,000 as invested with the gross amount of £ 700 at 5%. The following year, your investment should be reclassified at £ 10,000 to receive the annual £ 500 relief.
2. How to apply for tax relief
You cannot formalize an investment relief entitlement until you have received a tax exemption certificate from the CDFI and the tax year to which the entitlement relates has expired.
Enter the “Amounts invested” for which relief is requested in box 3 under the “Other Tax Reliefs” section on page Ai 2 of the “Additional Information” page 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 tax return relates and for investments made in previous tax years for which the relief is still due. You must also provide us with details of each investment in box 19, “Other Information,” on page TR7 of the tax return.
2.1 Example 4
You invest £ 10,000 in a CDFI on June 1, 2016 and an additional £ 5,000 on June 1, 2017. For each investment relief, the tax year in which the investment is made is due and the following 4 years. The entries for each year in field 3 of the section “Other tax relief” on page Ai 2 are as follows
|2016 to 2017||2017 to 2018||2018 to 2019||2019 to 2020||2020 to 2021||2021 to 2022|
|£ 10,000||£ 15,000||£ 15,000||£ 15,000||£ 15,000||£ 5,000|
The amounts stated in the tax return include all amounts for which you have received relief by increasing your PAYE code or reducing a payment on account.
You do not need to send the tax relief certificate with your completed tax return. But keep it safe. We can ask you to see this when making inquiries about your tax return. Only one tax relief certificate is issued by the CDFI for each investment.
3. What is the “Amount Invested”?
The amount of tax relief you are entitled to under the CITR system is calculated by reference to the “amount invested”. For investments that are stocks or securities, the amount invested is the amount you subscribe to.
If the investment is a simple loan to a CDFI (or a deposit to a CDFI, which is a bank), in most cases the amount invested will be the same as the amount of the original advance or deposit . However, if you repay part of the loan (or withdraw part of the deposit) in the 5 years after the investment, your tax break will be reduced. This ensures that you do not receive any tax breaks for amounts returned to you by the CDFI.
Regardless of the type of investment you have made, if you receive any form of value, financial advantage, or benefit from the CDFI, your relief may diminish.
4th Adjustment of the PAYE codes and payments on account
Although you can only officially apply for CITR after the end of the respective tax year, there are two ways in which you can effectively use the relief within the current tax year. In both cases, you still have to make a formal claim for relief after the end of the tax year.
If your employer is deducting tax under PAYE, you can contact HMRC to request a change to your PAYE code for the current year that includes an amount that reflects the CITR likely to be due. This adjustment reduces the amount of tax that your employer deducts under PAYE.
If you make payments on account as part of the self-assessment, you can write to HMRC and ask us to reduce these payments to take into account the CITR amount that is likely to be due. If the final payments due in the account are greater than the amounts paid, we will charge you interest on the difference.
5. Factors Affecting Eligibility for Facilitation
A CDFI does not issue you a tax relief certificate unless an investment complies with the rules of the system that apply to the CDFI. However, there are system requirements that you as an investor must meet. These include the requirements that:
- You must be the beneficial owner of the investment
- There must be no agreements under which you are protected from the risks that would otherwise be associated with the execution of the investment
- The investment must not be part of a tax avoidance system
Online forms, phone numbers and addresses for advice on self-assessment.