Individual Investors
Why invest in a Charitable Bond?
What is a bond?
How do Charitable Bonds work?
How is investing in a Bond different to making a donation?
Why is a Charitable Bond a good investment?
How do I purchase a bond?
How much can I invest in a Bond?
Can I use a Charities Aid Foundation (CAF) or Stewardship account to buy a bond?
Can I get Gift Aid with a Bond?
How is my money invested?
How will I know what difference my money is making?
Will I be able to buy any further bonds?
What happens if I need the money before the end of the five years?
Could I transfer my bonds to someone else?
What happens if I die before my bonds mature?
What happens when my bonds mature?
Will I have to pay tax on the money I get back?
What are the risks with a Bond?
Where can I get more advice?
Why invest in a Charitable Bond?
- put your savings to work for the benefit of others
- a secure investment with a high return for charity
- release instant funds for charity
- support the development of affordable housing
- all your money back in five years' time
Citylife’s Charitable Bonds are a unique financial tool to allow money that might otherwise be sitting in savings accounts to be put to work for social benefit. That means you can now use your money to support charity without having to give it away.
A bond is a financial mechanism for investing money in an organisation, like a bank or a company, for a fixed period of time. It’s a contract in which the investor effectively agrees to lend a certain amount of money, and the organisation promises to pay it back (‘redeem’ it) on certain terms at a later date (‘maturity’). Citylife offers bonds at fixed denominations with zero interest, so if you buy a £1,000 bond from Citylife, you are buying a promise that Citylife will pay you £1,000 in five years’ time.
In this document we use ‘bonds’ (with a lower case ‘b’) to refer to the bonds of different denominations that are bought by investors. Each offer of bonds is referred to in this document as a ‘Bond’ (with a capital ‘B’).
Citylife’s Charitable Bonds work by providing a combination of grant funding and capital loans.
At the request of one or more charities, Citylife may create an offer of bonds on their behalf. Individuals and organisations may subscribe to invest in the bonds during a set offer period.
When the offer period closes, around 80 per cent* of the total raised is loaned at a commercial rate of interest to a registered provider of social housing. The housing provider is regulated by the Tenant Services Authority, and will use the loan as part of its business to develop and maintain affordable housing. The remaining 20 per cent or so after costs is immediately given as a tax exempt grant to the charity (or charities).
After five years, the housing provider repays the loan with interest – taking the fund to its original 100 per cent level – and bondholders are repaid in full. So on an investment of £1,000 for example, around £200 will immediately go to charity while the rest will work to create affordable places to live. In effect, what you give is the interest you might have received over five years had you put the money in a bank or invested it elsewhere.
* Exact figure depends on commercial interest rates at time of issuing the loan - see example below
|
Example |
^ Top
How is investing in a Bond different to making a donation?
Investing in a Charitable Bond is an additional way to support charity. By putting your savings to work for the benefit of others, you can give more than you can afford to donate, or still support charity even if you don’t feel in a position to give money away.Alternatively you may prefer investing in a Bond to giving outright. However, you should remember that around 20 per cent of your investment goes to charity, and ensure that buying a bond does not reduce the total amount you give to charity.
Why is a Charitable Bond a good investment?
A Charitable Bond is the ideal opportunity for people who are more interested in making a social profit from their savings than a personal gain.By supporting a charity through investing in a Charitable Bond, you are effectively releasing five years’ worth of compound interest on your savings which is given to the charity on day one. This up-front grant will be more effective in enabling the charity to achieve its mission than an equivalent amount in smaller donations spread over five years.
Since Citylife is also a charity, it is able to make this immediate grant and lend the remainder without having to pay tax on the interest gained on the loan. What’s more, by pooling the money of multiple investors, Citylife is able to on-lend the investment in its Bonds at a commercial margin above standard rates. This makes the Charitable Bond an effective and excellent value way to support charity.
Finally, a Charitable Bond is an entirely ethical investment. As well as releasing grant funding for charity, the underlying loan to a social housing provider will help to create affordable homes and provide services and support to those who live in them.
You can buy bonds as an individual or jointly with one other person.
There are different values of bond that you can buy, at £1,000,000, £100,000, £10,000, £1,000, and £100. This allows you to buy a combination of bonds for the amount you wish to invest, and after five years to invest some or all of the bonds in a new Bond if available, or to donate some or all of the bonds to charity.
Once the offer document for a Bond has been published, you just need to complete an application form and send us a cheque for the amount you wish to invest. The bonds are officially purchased on the issue date when you will be sent a certificate confirming your purchase.
How much can I invest in a Bond?
The minimum amount you can invest in a Bond is £500, and you can invest any amount greater than this in multiples of £100.
Can I use a Charities Aid Foundation (CAF) or Stewardship account to buy a bond?
Yes, you can buy a bond using a CAF or Stewardship account (or similar), but your investment must be repaid to the same account on redemption of the bond.
Can I get Gift Aid with a Bond?
No, because the interest that is accumulated on your investment is already exempt from tax.
To ensure that you get back what you put in, around 80 per cent of your investment is loaned at a commercial rate to one or more registered providers of social housing. These are government regulated housing providers that build, develop and maintain housing for local communities and key workers. They typically support people in need through provision of low-cost rental accommodation and through financial schemes, such as shared ownership, to help those who cannot afford to buy their own homes outright. They may also offer other services such as sheltered housing or at home care.
Citylife works with a number of housing providers, both because of the social benefits they deliver and because they are a secure investment (see risks section below). Details of the provider Citylife will work with for a particular Charitable Bond will be given in the offer document for that Bond.
How will I know what difference my money is making?
The charity (or charities) you are supporting through a Bond will send you regular updates about how the yield from your bond is being spent and the difference it is making.
Will I be able to buy any further bonds?
Once the offer period for a Bond has closed you will not be able to buy any more of those bonds. You will be able to invest in any subsequent Bonds issued by Citylife, although these Bonds may or may not support the charity of your choice.
What happens if I need the money before the end of the five years?
Bonds are a fixed-term investment and are not suitable for those who may require access to their money before maturity. However, you can transfer your bond(s) if someone is willing to buy it (them) from you.
Could I transfer my bonds to someone else?
Yes, Citylife’s bonds can be transferred from the original investor to another person. However, you should note that Citylife cannot give any assistance in finding a purchaser for your bonds and a purchaser may only be willing to buy your bonds at a discount.
What happens if I die before my bonds mature?
Regardless of whether the bond is held in your name solely or in joint names, your interest in the bond will be disposed of in accordance with your will (or in accordance with intestacy rules if you have not made a will). The bond will still be repaid in accordance with the terms and conditions of the bonds – but payment will be made to the then holder. Please note that Citylife cannot advise you on the inheritance implications or any tax implications – you must seek your own independent professional advice from an adviser that understands your circumstances.
What happens when my bonds mature?
We will contact you before your bonds mature for instructions. You can choose to:
- receive all your initial investment back
- donate part or all of the value of your bonds to charity
- reinvest part or all of your bonds up to £20,000 in membership shares of Citylife
- you may be able to roll your investment over into a subsequent Bond
Will I have to pay tax on the money I get back?
No tax should be payable by primary investors on redemption of their bonds as the repayment amount equals the investment amount and therefore no capital gain arises. Potential investors should seek advice from their professional tax advisors if in any doubt about the tax implications of an investment in a Charitable Bond. Nothing in this document or any other document issued by Citylife should be construed as tax advice.
What are the risks with a Bond?
Citylife believes the risks of investment in a Charitable Bond to be very low.
The housing provider
The loan to the housing provider will be made for a term of five years and at a commercial rate of interest. The total amount repayable under the loan including interest will equal the amount required by Citylife to repay bondholders in full. The loan is assigned to an independent trustee (see below), which means that investors are taking credit risk on the housing provider’s ability to repay the loan, not on Citylife’s financial standing.
Registered providers of social housing are regulated by the Tenant Services Authority (TSA), the government regulator for affordable housing. Part of the role of the TSA is to protect tenants’ interests by ensuring that registered providers remain financially viable and settling the affairs of any providers who become insolvent.
Citylife only lends to providers that it is fully satisfied are of suitable credit based upon reports by the TSA and credit ratings by a bank or independent ratings agency. Details of the provider that Citylife will lend to for a particular Charitable Bond will be given in the offer document for that Bond.
The guarantee
Depending on the arrangements for a particular Charitable Bond, the loan to the housing provider may be backed by a bank guarantee. While the loan is considered by Citylife to be a very secure investment, the guarantee provides a further layer of protection. In the event that the housing provider is not able to repay the loan in part or at all, the guarantee means that the bank would pay the shortfall.
The arrangements for a particular Charitable Bond will be described in the offer document for that Bond.
The Trustee
The loan, and any associated guarantee, is assigned to a trustee. This means that even if Citylife were to stop trading, the trustee is in place to receive repayment from the housing provider and then to pay monies it receives to bondholders at maturity.
What are the risks of investing in a Charitable Bond?
Like any financial investment, investing in a Charitable Bond contains certain risks. Some of the risks that Citylife believes are material are set out below. However, please note that there may be other risks involved in investing in a Bond and certain risks may be due to your individual circumstances. If you are concerned about these risks you must consult your independent financial advisor.
Social investment and access to capital
A Charitable Bond is a social rather than financial investment. The bonds do not pay interest or provide any capital gain and, except at Citylife’s option (which it may not decide to exercise), the bonds are only repayable on the repayment date. The bonds are transferable, although there is a risk that you may not find a purchaser for bonds, and any purchaser may only be willing to buy the bonds at a discount.
This means that the bonds are not suitable for investors who require income or capital gains from their investment or investors who need ready access to their capital.
Credit risk on the housing provider
The bonds are limited recourse to the loan to the housing provider. In the event that the housing provider does not or is unable to repay the loan in full (or at all) then bondholders will not be repaid in full (or at all) on the repayment date. The general assets of Citylife are not available to make payments to bondholders.
As described above, Citylife only lends to housing providers with a low risk of default.
Credit risk on the guarantor
In the event that the housing provider does not repay the loan in full (or at all) then bondholders who have invested in a Charitable Bond with a bank guarantee may benefit from monies received under the guarantees. However, in the event that the guarantor does not or is unable to pay under its guarantee then bondholders will not be repaid in full (or at all) on the repayment date.
Financial Services Compensation Scheme
The Financial Services Compensation Scheme does not apply to an investment in a Charitable Bond.
bonds@citylifeltd.org
01223 323481
Content accurate as at 4 January 2010