Saving Expat Tax With A SEIS Investment

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Written By Saeed Maleki

Saving-Expat-Tax-With-A-SEIS-InvestmentExpats can exploit a little-known tax loophole to save money they owe HM Revenue & Customs (HMRC) in Britain.

Unlike most tax breaks offered in Britain, the Seed Enterprise Investment Scheme (SEIS) is open to non-residents, providing they have a UK income tax  bill, writes Stuart Smith of specialist web site

The tax saving is not widely advertised, but is included in the small print of SEIS terms and conditions on the HMRC web site.

“It’s uncommon for the British government to extend onshore tax reliefs to offshore residents,” wrote <name>.

“But with SEIS, the government obviously wants to attract money in to the country to boost business.”

Income tax reduction

Expats have to stick to two main SEIS rules –

  • They must have a UK income tax liability in the year of investment or the previous year
  • The SEIS company must meet strict qualifying rules for three years

Expats can pick up a 50% income tax reduction pro rata their investment up to £100,000 in a SEIS company.

A £100,000 investment means up to a £50,000 reduction on income tax due, regardless of the marginal rate of income tax paid by the investor.

However, if the level of investment means the amount of money available to reduce income tax is more than the amount due, the excess reduction is lost.

“Investors can take advantage of a carry back income tax reduction which allows the cost of shares bought in one year to be offset against tax due in the previous year,” said <name>.

SEIS carry back

“SEIS rules apply the relief appropriate to the earlier tax year when calculating the tax saving, but as SEIS started in April 2012, carry back can only go back that far.”

HM Revenue & Customs (HMRC) gives two examples of how the SEIS income tax reduction works –

  • Jenny buys £20,000 of SEIS shares. She owes income tax of £20,000 in the same tax year as she buys the shares. This reduces to £5,000 with the 50% relief worth £10,000 on her investment.
  • James also buys £20,000 of SEIS shares, but he an income tax bill of £7,500 in the same year. Although he is entitled to a £10,000 income tax reduction, he writes down his income tax in the year to zero but loses the additional relief as he has no other income tax to pay.