About
Charity Bank is an ethical bank and Responsible Finance provider with a mission to use money for good. The bank is owned by and dedicated to supporting charities and social enterprises. Since 2002, Charity Bank has used the money saved with it to provide over £240million of loan finance to organisations that are working to enrich and improve society.
In this case study, we look at how Charity Bank uses the Community Investment Tax Relief (CITR) scheme, to provide affordable loans and support to projects and organisations in disadvantaged communities.
Amount raised
Charity Bank offers two 5-year CITR accounts to savers – one personal CITR account, and one business/credit union CITR account. Since being accredited to offer CITR in April 2003, Charity Bank has been able to raise over £93m of CITR investments under the scheme, to support its CITR lending book.
Benefits of using CITR
Charity Bank CITR account holders can claim Income or Corporation Tax relief of up to 5% of the amount invested 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.
CITR, therefore, allows Charity Bank to raise deposits at a lower cost, whilst providing the saver with an attractive financial and social return. In turn, this enables Charity Bank to make more loans to charities and social enterprises and keep its lending rates affordable.
Challenges of using CITR
The amount of CITR deposits Charity Bank can raise under the scheme is linked to the amount of CITR eligible loans made. The CITR eligible lending criteria is very strict and is capped at £0.25m per project. This cap has not changed since the scheme was introduced in 2002, therefore in real terms the cap has reduced significantly due to inflation. Charity Bank believes that the eligible lending criteria should be broadened, and the per project cap increased. Such enhancements would enable the scheme to have even more impact.
Impact
Through the CITR scheme Charity Bank has been able to invest its CITR account holders’ money into hundreds of community projects, thereby helping regenerate disadvantaged communities and improve lives.
CITR deposits with Charity Bank become part of a social mission: they might be used to support people with learning disabilities and their families, offer young people a chance to re-engage with education, or to redevelop a community sports and training centre.
In its latest social impact survey, 97% of the bank’s borrowers said that their Charity Bank loan had contributed towards the achievement of their mission and 74% said the project would not have happened without Charity Bank’s support.
Lessons learned
Charity Bank’s experience is that once investors (especially higher or additional rate taxpayers) are aware of the scheme, the market-leading returns earned (whilst benefitting from FSCS protection up to £85k), coupled with the knowledge their funds are being used to benefit society, proves very appealing. Given this framework, investing in CITR is less risky than using Social Investment Tax Relief (SITR) and other investments with a similar return, where capital is at risk.