What do you want to know about SEIS?
What is the SEIS?
The Seed Enterprise Investment Scheme (SEIS) was introduced in April 2012 by HMRC to help small, early-stage companies raise funds through individual investors by providing a series of tax reliefs on investments made into qualifying companies.
The SEIS allows you to claim relief on up to £100,000 invested through the scheme per annum, meaning you could receive reliefs covering 78% of your investment or more. The reliefs available through the SEIS are detailed further below.
SEIS companies can be invested in directly or through an SEIS fund. If you're looking to invest more than £100,000 in a young business, you may wish to learn more about the Enterprise Investment Scheme (EIS) and EIS Funds.
Risk warning: 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.
SEIS tax relief
The Seed Enterprise Investment Scheme 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 what your tax bracket is.
Additionally, in order to benefit from most of the tax reliefs outlined below and in the examples, you must hold qualifying shares for a minimum of three years.
These are the tax reliefs you can get through the SEIS:
- Individual Income Tax relief of 50% of the amount invested
- Exemption from Capital Gains on earnings from shares
- Profits realised within three years are exempt from Capital Gains if reinvested in the SEIS
- Loss relief if the company fails (even if this is within the three-year hold period)
There are complex rules around what type of company qualifies for SEIS investment. While there is no way to guarantee an investment will be eligible for the SEIS, companies can apply to HMRC for SEIS ‘advance assurance’, which gives a provisional indication of whether or not a company may be eligible to apply for tax relief for its investors.
SEIS tax relief example
We have put together three scenarios below to demonstrate the investment outcomes possible through the SEIS. In the first scenario the company goes bust, in the second the company breaks even and in the third the company doubles in value.
For these examples, we will assume an Income Tax rate of 45%; where applicable, we will suppose that you owe Capital Gains at 28%.
The company you invested in goes bust. Your shares are worth £0, but you receive £225 loss relief (50% investment x your tax rate)
TOTAL LOSS: £275
You sell your shares for £1,000 after 3 years, having already claimed £500 in Income Tax relief
YOU GET: £1,500 back
(£500 TAX FREE)
Your shares are worth £2,000 at exit. You pay no Capital Gains Tax on the profits from shares you've held for 3+ years
YOU GET: £2,500 back
(£1,500 TAX FREE)
Claiming your SEIS tax relief
Before you can claim SEIS tax relief you must have received an SEIS3 form from the company in which you have invested. This form confirms the amount you invested and states that the investment is eligible for tax relief.
A company is issued SEIS3s by the SCEC (the Small Companies Enterprise Centre – a part of the HMRC) once it has been trading for four months or if it has spent 70% of its total investment. The company then passes an SEIS3 form on to each investor, who completes and submits it as part of their tax return.
Remember, HMRC may ask to see your SEIS3 form even after your taxes have been processed, so be sure to keep it safe.
Tax relief can be claimed up to five years after the 31 of January for the year in which the SEIS investment was made.
SEIS rules for investors
SEIS relief applies only to individuals (and not, for example, companies or trusts). In order to qualify for Income Tax relief, you cannot be ‘connected’ to the investee company by significant financial interest or employment. You are recognised as being connected to the company if you are a paid company employee, partner or director. The exception is if you are an unpaid director of the company, in which case you may still claim Income Tax relief.
You are also connected to the company and therefore ineligible to receive Income Tax relief if you have a 30% or greater interest in the company or any subsidiary (this includes share capital, voting rights and the rights to assets).
No partner or associate of the investor may have other interests in the company.
What kind of shares are eligible for SEIS relief?
To qualify for SEIS tax relief, shares must be new, ordinary shares which are not redeemable and have no special rights attached to them. Shares must be paid for in full and in cash (not any other assets) to be eligible for Income Tax relief. You cannot use a loan to buy the shares if it was only approved for the purchase of the shares.
The 'risk to capital' condition must be met for shares issued on or after 15 March 2018 in order for SEIS relief to be available.
The information on this page does not constitute financial advice and is provided on an information basis only, based on research using the following sources:
- HMRC guidance on tax relief for investors using venture capital schemes
- HMRC policy paper, Income Tax: Venture capital schemes – risk to capital condition
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