About Seed Enterprise Investment Schemes (SEIS)
The SEIS was recently introduced by the Finance Act 2012 and applies from the 2012/13 tax year. It was established to encourage investment into smaller companies, including start-ups. As these types of businesses are inherently more riskier than other investments, generous tax reliefs have been made available to investors providing much needed capital to young companies enabling them to grow, via a SEIS.
SEISs can either be a single company or a portfolio of qualifying companies, and investors considering investing in an SEIS should speak with their Financial Adviser to ensure that they understand the risks of investing. It is important to have diversification to spread risk and to know that investing in unquoted companies (whether directly or through a discretionary portfolio) is always considered to be higher risk.
Income tax relief of 50%
SEIS investment permits 50% income tax relief on total investments up to £100,000 per person in the tax year. This applies regardless or your marginal tax rate, so even if you're a basic rate tax payer you get the income tax relief at 50%. (You must however have a tax liability to reduce though).
Other tax benefits
Investors can also obtain exemption for Capital Gains Tax (CGT) liabilities incurred in current or preceding tax year, where the gain is invested into qualifying SEIS companies of up to 14%. This is not a deferral of the CGT owing, (as per a feature of the conventional EIS), but a direct tax relief.
Combined tax reliefs thereby can offer investors up to 64% relief through an investment in a SEIS.
SEIS offers investors
the opportunity to claim combined tax reliefs in addition to the 50% income tax relief.
- 50% Capital Gains Tax ('CGT') exemption (14% of the 28% CGT rate may be written-off)
- SEIS shares qualify for Business Property Relief, and so fall outside of the estate after holding the shares for a minimum of 2 years at the time of death and therefore are not subjected to Inheritance Tax.
- Further tax mitigation is offered by way of Loss relief – Investing
in SEIS is higher risk, and in the event of any write-offs investors may claim
further tax mitigation (the original amount less the 50% income tax relief)
E.g. For top-rate taxpayers loss relief is 45% on their “actual” investment,
which would be 22.5% of the total.
To see a summary of the main tax reliefs of SEIS and EIS, please click here
The specifics that relate to the recipient company include:
- A total of £150,000 is the maximum available per investee
- The company must not have already raised cash through EIS or VCT
- The company must be less than 2 years old
- The company must have fewer than 25 employees
- The company must have gross assets of less than £200,000
Shares must be held for at least 3 years to receive most SEIS benefits summarised above and readers are directed to information on the HMRC website here
for full details on SEIS investing and here
for full details on EIS investing. Your attention is drawn to the fact that this article does not constitute a personal recommendation. City Alliance is not authorised to provide specific and personal advice on the suitability of investments for a potential investor’s individual circumstances, risk tolerance or investment objectives. If you have any doubt about whether an investment in a fund such as an SEIS Fund is appropriate you should consult a suitably qualified financial adviser.