The Seed Enterprise Investment Scheme (SEIS) encourages investment in small new early-stage companies. The scheme complements the EIS but focuses on raising much smaller amounts of investment for new start-ups.
The SEIS offers extensive Income Tax and Capital Gains Tax breaks for UK investors which helps to drive seed capital in new businesses. There is, of course, a significant amount of risk in this type of investment and the tax reliefs available to investors using the scheme help to partially mitigate this.
For investors the main benefits of the scheme are as follows:
- Income Tax relief worth 50% of the amount invested to qualifying individual investors on a maximum annual investment of £100,000.
- A 50% exemption from Capital Gains Tax on gains reinvested within the scope of the SEIS.
- Disposals of SEIS shares are exempt from Capital Gains Tax once they have been held for three years and certain qualifying conditions are met.
The availability of both Income Tax and Capital Gains Tax relief makes the scheme very popular but investors must, of course, consider the importance of picking a good company to invest in and carry out proper due diligence. There is also tax relief available should the SEIS shares be ultimately sold at a loss where you can claim this loss against income instead of capital gains which is a great backstop on potential losses. Investments in SEIS will also usually qualify for Inheritance Tax reliefs.
There are also a significant number of conditions which the company seeking investment must meet in order to be eligible to use the scheme. For example, the company must have gross assets of no more than £200,000 and with less than 25 employees. The company can only raise a maximum of £150,000 in total investment through the SEIS.