Traditionally, there has been a wide gulf between investment and philanthropy – the former involves spending money to make a financial return, whether that be capital or income, while the latter has tended to involve giving money away to charities.  Investors have been able to take advantage of ethical investment funds that fulfil a certain purpose, for example avoiding "sin stocks" such as armaments, or portfolios that are positively screened for compliance with the UN Global Compact, but ultimately the goal of these investments is financial, and not social, return.  However the gulf is closing, with the increased prominence of social investment as a form of strategic philanthropy.  Philanthropists are not simply giving money away, but are looking at how their funds can be used to provide some level of public benefit while also providing an investment return.

Social investments can take a variety of forms – examples include loans to charities, or investing in industries and companies that have a positive impact.  Some charities have entered the bond market: for example, Scope has a £20million bond programme, which it admits may not offer as favourable a yield on an investor's funds as a bank – however, Scope states that "its success to date shows it is a price many people are willing to pay for this kind of social impact".

Investors can also put their money into social impact bonds (SIB) – these are designed to help reform public service delivery and improve the social outcomes of publicly funded services by making funding conditional on achieving results.  Rather than a traditional financial return, investors pay for a particular project at the start and then receive payments based on the results achieved by the project.  Examples include the Department for Work and Pensions Innovation Fund, a pilot initiative aimed at testing new social investment and delivery models to support disadvantaged young people. The ten SIBs that make up this fund raised around £10m from external investors, and the total maximum payments for outcomes amount to £28.4m.

However, given the often high risk nature of such investments and the lack of incentive for investors to put their money into social enterprises, going down this route has not always been so attractive. That potentially changed with the introduction of social investment tax relief (SITR) in April 2014. The relief allows social enterprises and those who invest in them to benefit from similar tax incentives to those available to commercial organisations under the Enterprise Investment Scheme, and the relief is available on debt as well as equity.  This makes it more flexible for investee organisations, and gives more product choice to investors, who can claim tax relief at a rate of 30% of the cost of their investment through their self-assessment return.

The relief isn't available to all investments in any social enterprise – only charities, community interest companies or community benefit societies carrying out a qualifying trade, with fewer than 500 employees and gross assets of no more than £15m at the time of investment may be eligible. There are limits on the level of investment per organisation (approximately £250,000 over 3 years) and the amount that individual investors can invest in such bodies (currently £1m per investor). Social enterprises must apply to HMRC to confirm that both they and the investment they have received meet the conditions of the scheme, and only then can investors claim tax relief.

As the relief is relatively new, and there are a number of hoops to jump through, only a handful of deals have been announced so far. However, changes introduced towards the end of 2014, which included an increase in funding per organisation and a planned expansion of the scheme to include Social Investment Venture Capital Trusts (a form of collective investment) should make the market for such investments more buoyant.