Seed Enterprise Investment Scheme tax relief for investors

Seed Enterprise Investment Scheme tax relief for investors

What is the Seed Enterprise Investment Scheme tax relief for investors (SEIS)

SEIS tax relief is a government initiative for investment in very small high-risk start-ups. These types of companies often struggle to get traditional funding (bank loans, overdrafts, credit card facilities, issuing bonds) and the government recognise this. To encourage private sector investment, generous tax reliefs are available for investors to encourage supporting these types of ventures.

Known as SEIS tax relief, an investor can benefit from:

  • SEIS income tax relief, this means, reducing their overall tax bill by 50% of the investment. A SEIS tax relief example, if your tax bill for the year is £100k and you invested £100k into a qualifying SEIS scheme, you can make a claim to HMRC to reclaim £50k of tax. There are options in which tax year this claim is made.
  • claiming further tax relief if the business should fail (the overall investment could be reduced to only 27.5%). Continuing from the example above, if your income in a tax year is £250k and your investment after 3 years is reduced to NIL, you can set off the remaining £50k against your income. This means, you will be able to reduce your taxable income down to £200k and make a claim for overpaid tax.
  • If the business is successful, sell the shares free of capital gains tax (subject to a minimum holding period). By way of an example, if your £100k SEIS investment shares are sold for £150k, there is no capital gains tax to pay.

How many shares can I buy

You cannot hold more than 30% of the shares in any single SEIS company. This includes "associated" holdings such as those with your spouse/civil partner and/or children.

What happens if an SEIS company loses its qualifying status

You are in trouble because you will lose all the tax reliefs.

What evidence will you need to make an SEIS claim

The qualifying company will issue you with an SEIS3 - this is a certificate that confirms you own the shares and that they are qualifying.

Food for thought

The risks to your capital are huge because these will often be very high risk in nature and likely to eat through cash at a high rate. This article is written from a tax perspective but always consult a qualified financial advisor.

Contact Us to discuss your personal circumstances.