The Seed Enterprise Investment Scheme (SEIS)
Seed enterprise investing is designed to increase investment in the early development of high potential growth businesses. The scheme is similar to the EIS but focuses on smaller, early stage companies carrying on, or preparing to carry on, a new business in a qualifying trade. The scheme was originally set to end on 5 April 2017 but was made permanent in the 2014 Budget.
The SEIS provides for extensive income tax and capital gains tax breaks for investors and this greatly encourages much-needed seed capital in new businesses.
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.
Investments in SEIS will also usually qualify for inheritance tax reliefs. 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.
The tax relief is given by reducing an individual’s overall tax liability with the proviso that there is a sufficient liability against which to set it. It is also possible for the investment to be carried back to the preceding tax year in order to maximise any unused relief.
Directors of the company in question may invest under the SEIS but only if they do not hold more than 30% of the company’s issued share capital or of its voting rights or of the rights to its assets in a winding up. If these limits are exceeded, this is known as ‘substantial interest’ and would not qualify. Employees of the company would not qualify for investment in the SEIS.
There are a number of further conditions which must be met in order to invest in the scheme. For example, the scheme can only be used to invest in small companies i.e. companies with gross assets of no more than £200,000 and with less than 25 employees. The company cannot raise more than £150,000 in total through the SEIS.
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