50% tax relief:

Seed Enterprise Investment Scheme

 

 

Risk Warning: SEIS tax relief depends on an individual's circumstances and may change in the future. In addition, the availability of tax relief depends on the company invested in maintaining its qualifying status.

 


What is SEIS?

 

In an effort to encourage the public to invest in start-ups, the government offers tax breaks which cover an impressive 78% or more of each investment made, through what is known as the Seed Enterprise Investment Scheme (often referred to as Seed EIS or simply SEIS). The School for Startups has put together a great introduction to SEIS, that you can read below

 


Summary of tax reliefs offered through SEIS

 

SEIS offers a number of tax reliefs to investors ranging from automatic reductions to loss relief and capital gains avoidance. Some of these are dependent on your tax bracket so you'll need to be aware of that.

  • Individual income tax relief of 50% of the amount invested with SEIS

     

    Individual income tax relief of 50% of the amount invested with the potential to split the relief between the tax year of your investment and the previous tax year

  • Exemption from Capital Gains Tax

     

    Exemption from Capital Gains Tax on the earnings from your shares so long as you have held them for a minimum of three years

  • You are also able to receive Capital Gains Relief

     

    You are also able to receive Capital Gains Relief of up to 50% of the profits if you sell within three years and reinvest the profit into SEIS companies

  • Loss relief in the event that the company fails

     

    Loss relief in the event that the company fails. The amount you receive in loss relief is equal to your investment minus the 50% you received back (item 1) multiplied by your tax rate (an example of this can be found below)


A brief history of the Seed Enterprise Investment Scheme

 

The Seed Enterprise Investment Scheme, often referred to as SEIS or Seed EIS, was introduced in April 2012 by the HMRC to help small, early-stage companies, raise funds through individual investors by providing very generous tax relief to investors who take risks on these very early stage ventures. It builds on the success of the Enterprise Investment Scheme (EIS) which was introduced in 1994 to help raise funds for small unquoted companies by providing similar, though not as extensive, tax relief to investors. A few quick investor rules about SEIS before getting into the tax reliefs:

  • Investors may put up to £100,000 per year into SEIS investments
  • Investors may NOT control more than a 30% stake in any company invested in through SEIS
  • If you are looking to invest more than £100,000 per annum you may wish to consider additional investments under the Enterprise Investment Scheme (EIS)

Further, for those interested in diversifying their portfolio through a fund structure, you may wish to consider learning more about SEIS funds.

 


Examples of SEIS in action

 

SEIS Tax Relief scenarios

Scenario 1

The company fails

Imagine you invest £1,000 through SyndicateRoom into a Seed Enterprise Investment Scheme (SEIS) eligible company and that the company you have invested in fails.

For this example we will assume a tax rate of 45%.

-£1000
Investment

You've found a great SEIS eligible company and decide to invest £1000 to start

+£500
Tax bill

The year you invest you are able to receive 50% of your SEIS in investment back

+£225
Loss relief

If the company fails you will receive loss relief = 50% investment x your tax rate

-£275

The actual amount of your £1000 investment you will lose if everything goes wrong

Scenario 2

The company breaks even

Now imagine that you invest £1000 through SyndicateRoom into a Seed Enterprise Investment Scheme (SEIS) eligible company and in a few years' time the company sells on for the same value as when you invested.

-£1000
Investment

You've found a great SEIS eligible company and decide to invest £1000 to start

+£500
Tax bill reduction

The year you invest you are able to receive 50% of your SEIS in investment back

+£500
Profit from sale

The amount you receive for your shares when the company decides to exit

£500 tax free*

* You don't pay Capital Gains Tax on the profits from shares you've held on to for at least 3 years

Scenario 3

The company doubles in value

Lastly, imagine that you invest £1000 through SyndicateRoom into a Seed Enterprise Investment Scheme (SEIS) eligible company and in a few years' time the company doubles in value.

For this example we will suppose that you owe capital gains at 28% and, as per the other examples, your tax rate is 45%.

-£1000
Investment

You've found a great SEIS eligible company and decide to invest £1000 to start

+£500
Tax bill reduction

The year you invest you are able to receive 50% of your SEIS in investment back

+£2000
Profit from sale

The amount you receive for your shares when the company decides to exit

£1500 tax free*

* You don't pay Capital Gains Tax on the profits from shares you've held on to for at least 3 years


How do I claim SEIS tax relief?

 

First, you should consider only investing in companies that have SEIS advanced assurance. This means the company has already applied for and received confirmation that they can offer SEIS tax incentives to investors. Without advanced assurance there is no guarantee that you will see any tax relief materialise.

Second, you need to know that you cannot claim your money back until the company you've invested in has been trading for four months or, if it has not been trading, has spent 70% of the total investment.

Now the complicated part made simple:

  • When the company has been trading for four months, or if it has spent 70% of the total investment, the company must complete and return the SEIS1 form to the SCEC (the Small Companies Enterprise Centre, part of the HMRC).

  • When the SCEC has reviewed the form and confirmed that the company has met the requirements of SEIS, the SCEC will issue an "SEIS3" claim form to the company which must then be sent to each investor for completion.

  • When an investor receives the SEIS3 form the form is to be completed and submitted as a part of the investors' tax return.

  • SEIS relief can be claimed up to five years after the 31 of January for the year in which the investment was made.

If you have any further questions about claiming back SEIS tax relief we suggest getting in touch with the Small Companies Enterprise Centre.

 

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