The Seed Enterprise Investment Scheme (SEIS) offers tax breaks unlike any others available in the world for investors. By placing money into a UK-based start-up which qualifies for the scheme, the tax breaks offered essentially allow shares to be purchased at a fraction of the cost, therefore offering the potential for greater return on investment and simultaneously encouraging money into the UK’s start-up market.
By reducing the risk to investors, SEIS has been responsible for some exciting and potentially profitable businesses securing funding where they may otherwise have struggles. The long-term benefits to the UK’s economy will no doubt become clearer as the scheme’s first invested businesses mature, but as the scheme was only introduced in 2012, these businesses are still a few months from revealing their profitability over the course of the first three years.
Important Stats for Investors
If, as an investor you realise capital gains with the SEIS rules as they are currently, you can expect the following:
- Claim up to 78% of your investment back if your chosen investment is a success, and when selling your shares, pay no CGT.
- Receive up to 86% of your original investment back if the start-up falls by the wayside.
- Investor can claim SEIS tax relief after three years of holding shares.
- Company must stay compliant during three year period.
- Investors must be over 18 years of age
- Maximum investment annually is £100,000
- Can only hold a maximum stake of 29% in the company
- Shares must be paid in cash and in full
There are three methods for investors looking to benefit from the tax breaks and the reduced risk attached to investing through SEIS:
Personal Investment – You source a company yourself, perform due diligence and place funds into them having certified that they are an SEIS compliant entrepreneurship
Crowdfunding or similar platform– The platform will have a portfolio of companies which they have selected and have performed due diligence on. You then are essentially a member of a consortium placing funds into a start-up via the platform. Requires very littler involvement on your part.
Fund Houses – Usually used by Financial Advisors as part of larger portfolio of diversified investments, in order to make financial and tax planning arrangements. Fees attached to these funds should be noted before entering into the arrangement.
The most popular method for investing is the personal option, although recently, many SEIS-favouring platforms have become involved in some very high profile investments in some excellent looking tech start-ups across the UK.
As a high net worth individual looking to place funds into a new project which could offer both huge growth and low-risk, the SEIS really is a vital piece of legislation which has – and will continue to – change the face of the investment market and the start-up sector in the UK.
If you are an investor looking to find SEIS investment options, or if you are an entrepreneur hoping to qualify for SEIS funding – you can download a comprehensive guide to the scheme at SEIS.co.uk