Tax Increment Financing (TIF)

A funding mechanism by which local authorities issue bonds (www.practicallaw.com/0-107-6503) to fund major development projects. The bonds are repaid using business tax revenues generated by the new or improved infrastructure. The risk that the revenues do not meet the cost of repaying the bonds can either lie with the investors or the public sector issuing the bond depending on how the TIF is structured. Interest received from a TIF-funded project is usually exempt from tax to encourage investment.

TIFs are commonplace in the USA and have been piloted in Scotland but have not yet been used in the rest of UK.

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