What is an SEIS fund?
An SEIS fund is a managed investment vehicle that raises cash from individuals and institutions for the purpose of investing in a portfolio of SEIS eligible ventures with the hopes of returning a profit to all those who have invested in the fund. SEIS is short for Seed Enterprise Investment Scheme, a scheme run by the HMRC which offers impressive tax reliefs for those who invest in either an SEIS fund or SEIS eligible ventures directly.
The benefits of SEIS funds
Beyond the generous tax reliefs that are offered through the Seed Enterprise Investment Scheme (outlined below) SEIS funds spread the risk of investing in early stage companies by investing in a large portfolio of these ventures. Further, SEIS funds are managed by individuals who tend to have experience in the space and, in theory, should perform a higher level of due diligence on the companies seeking investment than you might do on your own.
The main tax reliefs afforded through SEIS are:
- Individual income tax relief of 50% on up to £100,000 invested
- No Capital Gains on the sale of shares held for at least 3 years
- Loss relief on your at risk investment multiplied by your tax rate.
Find full details of SEIS tax relief here.
The down side of SEIS funds
While there appear to be many upsides to investing in an SEIS fund, there are also a few key points to be aware of.
First, while all early stage investments are risky, the government offers these great tax breaks for a reason; SEIS is only available for companies who have been trading for less than two years, have fewer than 25 employees, and have no more than £200,000 worth of assets.
Secondly, SEIS funds tend to charge significant fees for their work and due to how recent they are there is not sufficient evidence to prove or disprove that they return much to the investors beyond the tax breaks.
In some cases, had an investor decided to directly invest rather than through a fund, they would have been able to invest an equal amount into 1 or 2 additional companies. Read more about SEIS and EIS fund fees here.
Lastly, these funds are fairly illiquid, once you’ve invested you are unable to get cash out easily and are unlikely to see any form of return for a minimum of 3 years, the minimum time you must keep your shares to hold onto the tax reliefs. While you must hold the shares for 3 years, in reality you are not likely to see returns for 5 or more years.
Alternatives to SEIS funds
We’ve brought together just a few alternatives to SEIS and EIS funds to give you a flavour of the differences. You can read about more opportunities in our crowd investing hub. Further, if you’d like you can learn more about alternative investments and how they play a part of your wider investment portfolio.
Putting money into an Individual Savings Account (ISA) offers savers favourable tax arrangements on up to £15,000 pounds invested per year. ISAs come in two major forms, Cash ISAs and, Stocks and Shares ISAs which can be invested in qualifying investments. ISAs are exempt from income tax and capital gains tax on the investment returns.
Peer to Peer Loans, or P2P Loans for short, offer those interested in taking on a little more risk the chance to select directly who to lend money to. Cutting out the bank and many other intermediaries, P2P websites can currently offer lenders anywhere from 10-15x the returns of savings account. Find out more about Peer to Peer Lending.
Investing Directly in SEIS opportunities
Instead of investing through a fund you can always opt to invest in SEIS eligible ventures directly or through a platform. The benefits, as mentioned above, are in avoiding the high fees often associated with the funds. However, if you are investing on your own and are new to the space, we suggest carefully considering your options
At SyndicateRoom we offer our members the opportunity to invest in SEIS and EIS investment opportunities where an experienced business angel or professional investor is investing their own money and leading the round.
Membership of SyndicateRoom is free, join now to see all of our investment opportunities.