Did you know that SEIS can save your family £40,000 per year?

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Example No.1

SEIS with In-laws

Mr Smith has sold his business in the current tax year leading to a gain of £100,000 after all allowances and reliefs. Rather than pay the capital gains tax on that amount and also potentially suffer inheritance tax at 40% on the cash remaining on his inheritance, he decides to set up an SEIS company with his son-in-law.

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SEIS outcome

During the same tax year Mr Smith’s income resulted in an income tax bill of over £50,000 and so he recovered £64,000 in taxes by setting up the SEIS company with his son-in-law. As long as Mr Smith holds on to the shares in the SEIS company for two years then this investment will also be exempt from inheritance tax and save a further £40,000 in tax.

Mr Smith is happy because he has avoided more in taxes than the amount he actually invested, and he is also able to act as a paid director and advisor of the new SEIS company to ensure that his investment is managed properly.

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Example No.2

SEIS with step siblings

James Ferry has a complicated family structure with two siblings, a step-mother, a half sibling and two step-siblings. His father, Paul Ferry (Snr), is already retired and enjoying a reasonable pension due to years of saving through his prior business. However, the subject of a Will has been avoided for some time and does not look like it will be implemented due to the sensitive topic.

James is concerned for two reasons: Firstly his father will inevitably be taxed on a large portion of his inheritance which will likely be far higher than Mr Ferry Snr probably realises. Given the number of children that Mr Ferry Snr is likely to split his inheritance across this will have a multiplying effect on what they receive individually.

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Secondly James recognises that his father’s estate will potentially pass in full to his mother-in-law without being taxed due to the spousal rules in place. James is concerned that his mother-in-law might be persuaded to be more favourable to her own children than her step-children.

SEIS outcome

James discusses with his father how investing in an SEIS company or companies could mitigate some of these issues or at least be the ignition for a conversation about inheritance without being insensitive. He is aware that step-relatives and siblings can own an SEIS company together and structured two companies at the maximum £150,000 each and sheltered £120,000 in tax being paid for himself and his siblings.

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Example No.3

SEIS as a Trust Fund

Mr Brown is retired and has three siblings. They all have children for whom they have worked all their lives and they want to give them as much of their inheritance as they can. They cannot afford expensive legal fees to set up complicated trust funds and neither do they have a large enough amount of money to put into a trust fund whilst also being able to maintain themselves into retirement.

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SEIS outcome

Mr Brown has heard of SEIS and he decides that he will set up a company with himself and his three siblings owning 25% each as shareholders. They decide to start a simple retail business and each fund £37,500 each for the shares which also pays for one of their children to be a paid employee to manage and operate the business.

Over time, each of the shareholdings pass down to the next generation tax free and the beneficiaries can decide if they want to remain as shareholders of the company or to sell their shares. Mr Brown has ensured that there is an automatic calculation method in the shareholder agreements for when anyone decides to sell their shares and so there are no arguments!

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