Look At SEIS As An Alternative Tax Shelter To ISAs

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Written By Saeed Maleki

Look At SEIS As An Alternative Tax Shelter To ISAsThe Seed Enterprise Investment Scheme (SEIS) could rival ISAs for investors looking for an inflation-busting place to shelter their cash from tax as the end of the financial year approaches.

With inflation running at 1.9% according to the latest figures from the Bank of England, a basic taxpayer needs to find a home for their money that offers more than a 2.38% break-even point.

Just over 80 ISAs currently offer a rate that tips over this amount, but although savings in an ISA grow free of capital gains tax and income tax, the low maximum limit of £11,250 offers little shelter for anyone looking for a greater yield.

However, although SEIS investments may carry more risk, the tax breaks of a three-year investment of up to £150,000 may deliver a better deal for many.

SEIS tax breaks

With a SEIS, investors receive great benefits, particularly on tax.

These benefits are:

  • A generous reduction on income tax which will amount to 50% of the total invested into an SEIS company. An £100,000 investment comes with a £50,000 relief on income tax that can be used during the year of investment or can be carried back to the preceding year
  • An exemption on CGT on assets that have been discarded on the same year as the SEIS investment has been made
  • No CGT will be charged on any profits made through the SEIS investment upon disposal of the shares at the end of the three year time period
  • Loss relief should the investment in a SEIS go wrong

SEIS is a government-backed program to encourage investment in start-up companies that cannot raise money to trigger growth from the banks or other traditional business funding sources.

Investors buy an equity stake in a new company.

Advantages for investors

The advantage to investors is any growth in the value of the company is reflected by an increase in the value of their shares, which can be sold at the end of the three-year SEIS term.

For the company, this means an injection of capital that is not tied to debt funding, so no capital or interest payments are taken out of revenue.

The HM Revenue & Customs,  has stated that over 1,00 companies have used the SEIS scheme since it’s launch 2 years ago and massive investments have been made towards these start-ups. The figures provided by the HMRC indicate that £90 million have been invested into SEIS companies thus far.

Although many classify start-ups as volatile investments, the HMRC has argued that the risk is greatly minimised due to the tax reliefs set in place by the government. 80% of the investment is protected through the schemes investor benefits.