Budget Notes

BN17 COMMUNITY INVESTMENT TAX RELIEF AND BANKING

Who is likely to be affected?

1. Banks and Community Development Finance Institutions (CDFIs).

General description of the measure

2. This measure will have effect for banks that invest in an accredited CDFI under the Community Investment Tax Relief (CITR) scheme ('the scheme') and that also act as banker to the CDFI.

3. Legislation will be introduced in Finance Bill 2008 to ensure that any deposits from the CDFI to the bank that are made in the ordinary course of its banking arrangements will not reduce the amount of CITR available to the bank in respect of its investment.

Operative date

4. The change will be treated as always having had effect.

Current law and proposed revisions

5. CITR is a tax relief given to individuals and companies that invest in CDFIs that are accredited under the scheme. The amount of relief is linked to the amount invested in the CDFI.

6. The scheme includes anti-avoidance rules such that, if the CDFI makes payments, or otherwise returns value, to the investor during the year preceding the investment, or the five years following it, the amount of relief due to the investor is reduced.

7. These anti-avoidance rules are widely drawn. They apply to most payments or transfers of value from CDFI to investors, with the exception of specified "qualifying payments".

8. Deposits by a CDFI into a bank with which it runs an account are not "qualifying payments". So if a bank invests in a CDFI under the scheme, and the CDFI operates an account(s) with that same bank, deposits represent a return of value under the value-received rules. Each deposit effectively reduces the amount of the investment on which the bank can claim CITR.

9. Legislation introduced in Finance Bill 2008 will carve out of the antiavoidance rules any deposits made by a CDFI in the course of its ordinary banking arrangements to an investor that is a bank.

10. The change will be treated as always having had effect. This retrospection is wholly relieving in its effect. It is intended to ensure any banks that have previously invested in CDFIs under the scheme get the full benefit of that investment.

Further advice

11. If you have any questions about this change, please contact Richard Kent on 020 7147 2635 (email: richard.kent@hmrc.gsi.gov.uk). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk