The new fund is one of the first in the UK to utilise the benefits of social investment tax relief at scale.

Resonance, a UK-based social impact investment company, has launched a fund to allow investors to back social enterprises using a new tax relief.

The £5 million ($7.8 million) Resonance Bristol Social Investment Tax Relief Fund will invest in social enterprises that are focused on reducing urban inequality. It is developed and run by Resonance and sponsored by UBS Wealth Management. It will be available shortly on the UBS Wealth Management platform, alongside other impact investments and comparable tax structures such as enterprise investment schemes (EIS) and venture capital trust (VCT) funds.

“Today’s fund launch shows that private sector investors can empower social businesses to tackle problems good for social enterprises and good for society at large,” said the managing director at Resonance, Daniel Brewer.

The Bristol-based fund, which requires a minimum investment of £10,000, will make use of a new tax relief called social investment tax relief (SITR), incentivising investment in charities, community interest companies and community benefit societies. It aims to invest in around a dozen social enterprises in Bristol, tackling issues such as access to the job market or access to affordable accommodation.

The fund has targeted a post-tax internal rate of return of around 8 per cent, based on 30 per cent income tax relief arising from investments over a two-year period.

Resonance plans to grow £30 million of SITR funds in several other cities across the UK over the next two-to-three years. However, this is currently restricted by an EU cap which limits SITR investment to £275,000 for each organisation. Resonance said removal of this cap would be a “game changer”, allowing for bigger deals from larger funds.

“Europe remains a big issue following the recent general election and an impending in-out referendum, and this is an early test for the new government to see if they can make our relationship with Europe work better for Britain,” said Brewer.

“This fund is the first in the UK to truly utilise the benefits of social investment tax relief at scale, and it simultaneously drives down the cost of capital for social enterprises ready to grow. We are excited that the UBS Strategic Partner Portal for IFAs will be the ‘go-to’ place for IFAs and their clients to take advantage of this exciting opportunity, hopefully generating consistent returns while delivering a positive social impact in the UK,” said Jamie Broderick, head of UBS wealth management, UK.

“We join Resonance and others in hoping the EU lifts the cap and ensures SITR can be rolled out to others who can benefit across the country,” he added.