Over the past couple of years, HM Treasury have gradually reduced tax relief available for renewable energy projects. Until 2014, smaller scale renewable energy projects were eligible for valuable tax relief in the form of enterprise investment scheme (EIS) relief. This gave income tax relief of up to 30% of the initial investment together with tax-free status for gains and the ability to roll over previous capital gains.
[For more information on the technical rules relating to EIS relief, click this link: http://www.hmrc.gov.uk/manuals/vcmmanual/vcm10530.htm ]
Whilst many of the projects are viable on the basis of the support tariffs alone, it is undoubtedly the case that the additional tax relief gave a significant boost to the development of small-scale renewables in the wind and solar sector. In particular, this has been helpful in building up capacity in the community energy sector, because some of the projected yield on investment is redirected towards social and community benefits and therefore the tax relief helps to make the investment overall more attractive from a financial perspective.
The government argues that the EIS relief should be focused on genuine higher risk, start-up businesses and that, as most renewable energy projects were eligible for government backed ROC and FIT subsidies, they did not merit the additional tax relief. In addition to this, in light of reducing cost of solar panels and the increased demand for sustainable long-term income streams payable from renewables (from organisations such as pension funds and insurance companies) that the renewable energy market was now mature and did not need this additional support. However, until last week very small-scale community energy projects were generally eligible for release both in respect of solar and wind projects.
Last week, there was a last-minute and surprise addition to the Finance Bill, currently progressing through Parliament. This amendment removed tax relief for community energy projects with almost immediate effect – and will not be replacing it with Social Investment Tax Relief, as previously promised.
This means that members of community energy projects will be ineligible for the tax reliefs of SEIS, EIS and SITR for shares issued from November 30th 2015 (where projects are also in receipt of FIT or ROCs etc). This change has come with no warning and was announced directly to the House of Commons last week as an addition to the Finance Bill.
Community energy advocates around the country have been taken aback by this unexpected statement, the speed with which changes are being made, and the reversal of earlier announcements on the intention to replace EIS with SITR. There appears to be no mechanism to challenge this decision.
In Scotland, there are a number of projects which are impacted by these changes, including the Heartland wind energy project, the Applecross hydro project, the Rumbling Bridge Hydro Society scheme and most notably the Edinburgh Solar Co-op. All these projects remain open but eligibility to claim the valuable EIS relief will cease on 30 of November, meaning that to qualify, investors will invest and ensure cleared funds are deposited prior to this date. Terms vary from scheme to scheme, and you would need to check the offer documents and providers for further details.
Please note, that this article is not a financial promotion or recommendation for any of the mentioned schemes. Ethical Futures have not carried out any due diligence on the schemes and you should be aware that these are unregulated investments, not protected by The Financial Services Compensation Scheme and likely to be largely illiquid, requiring long-term investment.
Photo credit: K.H.Reichert / Foter.com / CC BY-NC
It is important to take professional advice before making any decision relating to your personal finances. Information within this article does not provide individual tailored investment advice and is for guidance only. We cannot assume legal liability for any errors or omissions it might contain. Ethical Futures llp is authorised and regulated by the Financial Conduct Authority.