In many ways, the SEIS is the smaller sister of the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) schemes.
A company that has had success with the SEIS will likely continue to raise investment either using the EIS or VCT. There remain many options for raising finance after using the SEIS. The EIS encourages investment in smaller, unquoted, trading companies, but the limits are significantly larger than for the SEIS. The main tax relief for investors comes in the form of income tax relief of 30%.
How It Works
The maximum annual amount that an individual can invest through the EIS is £1 million. As with the SEIS, income tax relief is limited to the amount which reduces your income tax liability for the year to nil. At Key Business Consultants we have processed over £1.5million of tax relief for hundreds of individuals since specialising in SEIS tax relief in 2013.
However, the income tax relief of 30% for the EIS is significantly lower than the income tax relief for the SEIS of 50%. This is mainly due to the fact that the SEIS investor faces even more risk in very early stage investments. EIS investments also qualify for other reliefs including Capital Gains Tax deferral relief for the life of the investment and tax relief for any losses made on the shares bought.
The VCT scheme is also intended to encourage individuals to invest in small, usually high-risk trading companies. You can get Income Tax relief at 30% on new subscriptions for ordinary shares in VCTs by individuals 18 or over. The maximum amount qualifying for relief is £200,000 in each tax year.
Shares, Dividends & Exemptions
Dividends received from VCTs are exempt from income tax, provided the shares (acquired by subscription or purchase):
- are within the annual limit of £200,000
- are held for 5 years.
Shares in VCTs acquired within the annual limit are also exempt from CGT on disposal at any time. However, losses on disposal are not allowable as capital losses.
The introduction of the SEIS compliments the EIS and VCT schemes and helps drive much-needed investment to British business. A further EIS or VCT fundraising round can take place within a short time after the SEIS investment. This is helping business and investors succeed.