Seed Enterprise Investment Scheme (SEIS)

Introduced in April 2012, the Seed Enterprise Investment Scheme (SEIS) provides private investors in small, early-stage companies with up to 100.5% tax relief on investments of up to £100,000 and entrepreneurs the ability to raise up to £150,000 in equity capital.

SEIS for Entrepreneurs

The Seed Enterprise Investment Scheme is designed to help small, early-stage companies raise up to £150,000 in equity capital by providing private investors with up to 100.5% tax relief. 

Qualifying Companies

The scheme is only available to small, early-stage companies that are carrying on, or proposing to carry on a new trade. To qualify, a company must employ no more than 25 employees, have no more than £200,000 of assets, and be trading for less than 2 years. 

Investment Limit

A qualifying company is restricted to the amount of money it can raise through SEIS, with a cumulative limit of £150,000.

However, once 70% of funds have been spent, companies can raise up to £1 million through the traditional Enterprise Investment Scheme (EIS).

Qualifying Trades

Most trades qualify but some do not. View a list of excluded trades.

Advance Assurance

It may be beneficial, although not a requirement, to seek Advance Assurance from HMRC to confirm the company and proposed share issue qualifies for SEIS relief before seeking investment. Note however, HMRC will withdraw and/or claim back the tax relief from the investor should the company lose its qualifying status within 3 years. Contact us for advice.

Investment from Directors

There are no restrictions on directors investing in SEIS qualifying companies providing they do not have a ‘substantial interest’ in the company or own more than 30% of the company’s issued share capital at any time from the date of incorporation to the third anniversary of the date of issue of the shares.Seed Enterprise Investment Scheme (SEIS)

SEIS for Investors

The Seed Enterprise Investment Scheme (SEIS) provides investors in small, early-stage companies with up to 100.5% tax relief on investments of up to £100,000 per tax year.

50% Income Tax Relief

For investment in qualifying shares issued on or after 6 April 2012, investors meeting the relevant conditions will be able to claim a reduction in income tax equal to 50% of the amount invested, up to £100,000 per tax year. The 50% rate of relief is available even if the investor only pays tax at the 20% or 40% rate.

Example: Mr X invests £20,000 in the tax year 2012/13 in SEIS qualifying shares. The SEIS relief available is £10,000 (£20,000 x 50%). His tax liability for the year (before SEIS relief) is £15,000 which he can reduce to £5,000 as a result of his investment.

28% Capital Gains Tax Relief

There is a rare opportunity, until 5 April 2013 only, to mitigate Capital Gains Tax (CGT) entirely on gains of up to £100,000. There is no limitation on the type of assets that may be disposed. All types of disposals, including shares and properties, will qualify.

Example: Mr Y sells a buy-to-let property and some listed shares in June 2012 for £200,000 and releases a chargeable gain (after the annual CGT exemption) of £80,000 which would be taxable at 28%. If he makes qualifying investments of at least £80,000 in SEIS shares, and all other conditions are met, the £80,000 gain will be free from CGT. He does not need to invest the whole £200,000 sale proceeds in order to get full exemption.

Budget 2013 Update – Capital Gains Tax Relief Extended

Capital Gains Tax (CGT) relief is being extended to gains accruing to individuals in 2013/14 providing the gains are reinvested in SEIS shares in 2013/14 or the following year. The extension of the relief is for 50% of the qualifying reinvested amount, not the full 100% as was the case in 2012/13.

Loss Relief

Should the investment prove to be unsuccessful and the company is closed down, the investor may be able to claim income tax relief on the loss of up to 100.5%. The loss will be the amount of the investment, less the amount of income tax relief which has already been received.

Qualifying Investors

Investor must not be an employee of the company in the three year period commencing on the date of the issue of the shares, although the investor can be director providing they do not have a ‘substantial interest’ or own more than 30% of the company’s issued share capital at any time from the date of incorporation to the third anniversary of the date of issue of the shares.

Withdrawal of SEIS Relief 

HMRC will withdraw and/or claim back tax relief from the investor should the company lose its qualifying status within 3 years. It is therefore important the company retains a professional adviser. 

Free Initial Consultation - Contact Us

For further information, or to discuss whether the Seed Enterprise Investment Scheme (SEIS) would be advantageous in your particular circumstances, please telephone Ian Leigh or Justin Randall on 020 7309 2222.

 

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FOR GENERAL INFORMATION ONLY Please note that this article is not intended to give specific technical advice on the Seed Enterprise Investment Scheme and it should not be construed as doing so. It is designed to alert clients to some of the issues. It is not intended to give exhaustive coverage of the topic. Whilst every care has been taken in the preparation of this article it may contain errors and/or omissions. Professional advice should always be sought before action is either taken or refrained from as a result of information contained herein. Article last updated June 2013.