The Spring Budget 2023 – significant changes to Community Investment Tax Relief

The Spring Budget 2023 announced an update to the CITR rules for CDFIs, which could inject significant additional lending capacity into the sector.

Community Development Finance Institution's ("CDFIs") are non-profit lenders that provide debt financing and support to businesses and communities that operate in underserved or deprived areas with customers who are usually unable to access mainstream financing options. Community Investment Tax Relief ("CITR") is a tax relief scheme that encourages investment in CDFIs by allowing investors (either companies or individuals) to claim back corporation or income tax up to 25% of the amount they invest in the CDFI, spread over five years.

In the Spring Budget unveiled by the UK Government on 15 March 2023, the Chancellor announced a change to certain thresholds which apply to (i) a CDFI's lending and (ii) the levels at which CITR is obtainable by a CDFIs funders.

Section 4.54 of the Spring Budget sets out the headline summary of the changes, which are:

The Community Investment Tax Relief (CITR) expansion – The amount Community Development Finance Institutions (CDFIs) can lend to eligible businesses will increase from £250,000 to £375,000 for non-profit organisations and from £100,000 to £250,000 for profit organisations. In addition, the amount accredited CDFIs can raise through CITR will increase from £10 million to £25 million for retail CDFIs and from £20 million to £100 million for wholesale CDFIs.

This accomplishes two things:

(1) firstly CDFIs will have the option to better leverage their funding pools by investing larger amounts into individual eligible businesses; and
(2) the thresholds against which CITR can be claimed by those financial institutions and lenders who provide CDFIs with their capital are being increased.

These changes should allow CDFIs to attract greater levels of investment, using CITR as an incentive to invest, and to then be able to invest those monies in greater amounts in the deprived areas which they serve.

Responsible Finance, the national membership body for responsible finance providers, have estimated that this could see an injection of an additional £20,000,000 of lending capacity into the sector per year.