The SEIS offers seed investors extremely generous tax reliefs and this greatly helps raise much-needed seed capital in new businesses. The tax reliefs are even more generous than under the EIS reflecting the fact that this is usually, at least on paper, a higher risk investment.
For investors the main benefits of the SEIS 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 or become worthless.
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 a company looking to raise finance may invest under the SEIS but only if they qualify. They cannot 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 the director would not qualify to invest under the scheme. Employees of the company do not qualify for investment in the SEIS either.
Under SEIS an investor will not be allowed to take a salary as an employee unless they become a director paid a reasonable salary. Under EIS someone who is already a salaried director cannot become an EIS investor but you can become a salaried director after the shares are issued and this will not disqualify the tax relief already given. You can also partake in future EIS share issues within the next three years of the first investment if you become a salaried director after that first round.
Please let us know if you would like to find out more about how the SEIS can help you or your business.