How Long Do I Need to Hold EIS/SEIS Shares?

Gary Green
Gary Green
December 14, 2020

The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) have both been designed to increase investment in the early development of high potential growth businesses.

The schemes are similar, with the SEIS more focused on very early-stage companies. There are strict rules for both companies seeking investment as well as for the taxpayers investing in an SEIS or EIS share issue.

Both the EIS and SEIS regimes require long-term investments and there is a minimum shareholding requirement of 3 years.

In general, the EIS / SEIS schemes should only be considered by sophisticated investors who are comfortable holding fairly illiquid assets for at least 3 years. The 3-year holding period for shares subscribed for under the EIS / SEIS regimes is the minimum holding period and investors may need to have an even longer-term outlook.

There can be a complete withdrawal of any tax reliefs attributable to shares if, by reason of some event, any of the conditions for the EIS / SEIS relief ceases to be satisfied.

It is very important that businesses looking to raise finance using either the EIS or SEIS schemes ensure that they qualify. Otherwise, investors will be unable to claim the promised tax reliefs. HMRC offer an ‘advance assurance’ service for both schemes that help ensure everything is in order before raising finance.

After the EIS / SEIS share issue, both the investor and the investee must meet certain qualifying requirements to ensure that tax relief is available. This is required in order to benefit from Income Tax and Capital Gains Tax (CGT) reliefs.

Income Tax relief is given at the time of investment. However, if the shares are not held for the 3 years from the date of issue Income Tax relief can be withdrawn or reduced. This applies unless the disposal was to a spouse or civil partner, in which case the spouse or civil partner is deemed to have subscribed for the shares in question.

There are complicated rules relating to the timing of transferring assets before, during or after a divorce so tax advice should be sought as soon as possible.

Capital Gains Tax

In addition, there are 2 CGT reliefs available within the EIS / SEIS regimes where an investor meets the qualifying conditions including holding the shares for at least 3 years. The investor must have received EIS / SEIS tax relief in full on the whole of their subscription for the EIS / SEIS shares and none of the Income Tax relief must have been withdrawn.

The two reliefs are:

  • CGT disposal relief on qualifying gains earned on shares held for a minimum of 3 years. If disposal relief is due then an investor will not have to pay CGT on any gain made on a disposal of their EIS / SEIS shares;
  • CGT deferral relief where a gain from the sale of an asset is used to make a qualifying investment in shares issued by a company that qualifies for EIS / SEIS. Again, the shares must have been held for a minimum of 3 years.

There are also rules the investee must follow for the investor to benefit from the various tax reliefs on offer with the schemes. This means that the company must follow the EIS / SEIS rules for at least 3 years after the investment is made. If not, tax relief can be withdrawn from investors.

For its investors to be able to claim and keep the tax reliefs relating to their shares, the company which issues the EIS / SEIS shares has to meet a number of requirements. If the company ceases to meet one or more of those conditions, investors may have their tax relief withdrawn.

One of the most important and often overlooked requirements is that in order to qualify for EIS / SEIS the company raising the finance must continue trading for at least 3 years from the time the EIS / SEIS shares were issued.

This is a reasonable condition as it encourages the longer-term growth of new companies. If the company goes into liquidation or closes down due to commercial reasons, HMRC will usually not seek to claim back tax incentives from investors. 

However, HMRC is clear that tax relief can be withheld, or withdrawn from investors if the company doesn’t follow the 3-year rule. For example, a start-up exit such as a third-party sale within the 3-year period.

At Key Business Consultants, we have an expert team of accountants and SEIS specialists who can help. Get in touch with us today to discuss any of the issues raised within this article or call us directly on 02037 282 848.

Interested in our services?
Fill in your details and a member of our experienced team will be in touch shortly to discuss your needs.
We adhere to strict GDPR rules and do not reveal or sell your data to any third-parties. For more, please read our Privacy Policy.
Latest Insights
October 13, 2021
What is the Restart Grant and How Do I Apply?

The COVID-19 global pandemic had a detrimental effect on many businesses, but there were some sectors...

September 27, 2021
Choosing The Correct VAT Scheme For Your Business

Choosing the right VAT scheme is an important step for small business owners and can have a considerable...

September 21, 2021
How to Claim EIS Income Tax Relief in 2021

If you need to know how to claim EIS income tax relief and enjoy what is...

September 2, 2021
Recovery Loan Scheme - What Is It and How Do I Apply?

As businesses seek to re-open and recover from the global pandemic, there are various forms of...

August 16, 2021
The Super-Deduction Scheme - How Does It Work?

You may have heard the term 'super-deduction' recently and wondered if you could be affected by...

August 12, 2021
The Tax Benefits of Non-Domiciled Status for UK Residents

Having a Non-Domiciled Status if you reside in the United Kingdom can have great benefits for...

July 9, 2021
Stamp Duty Land Tax (SDLT) Surcharge for Non-UK Residents

Stamp Duty Land Tax (SDLT) rates have changed again for non-residents buying a home in England...

July 7, 2021
How Is Cryptocurrency Taxed & Do I Need to Fill A Self-Assessment?

Cryptocurrency may live online with no government control or borders, but if you are in the...

July 5, 2021
Venture Capital Schemes: Tax Relief Guide For Investors

When it comes to finding out what tax relief is available for investors using a venture...

View Our latest insights »
Get the latest UK tax & business news and guidance delivered straight to your inbox
We care about the protection of your data. No spam. Unsubscribe anytime.
Copyright © 2021 Key Business Consultants LLP. Reg: E&W OC389322
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram