Seed Enterprise Investment Scheme (SEIS) Tax Breaks

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Written By Saeed Maleki

Business meetingIn 2012 the Government introduced the Seed Enterprise Investment Scheme (SEIS) to help increase investment in start-up companies and private entrepreneurs.

The initiative offers one of the most attractive and complete tax break packages available in any jurisdiction across the world, meaning that for both the investor and the entrepreneur, involvement in the scheme has unparalleled appeal.

To have access to the tax breaks, the investor must place funds into a small, unlisted start-up in return for shares. The company should not be quoted on any major stock market, should not employ more than 50 employees and should have maximum gross assets of £500,000, and should not be more than two years old. If all the criteria are met from the start-up’s perspective, investment with the promise of tax breaks can be sought.

Nobody could argue that there is more risk attached to investing in a small business in comparison to a large, established corporation, however small companies can also grow very quickly. So while it may be considered a higher risk, there is also a higher chance of better returns than investment in a steady global giant.

The Tax Breaks

SEIS goes a step further in terms of benefits than its parent initiative the Enterprise Investment Scheme (EIS). Although there are great similarities between the schemes, under the SEIS the investor is encouraged to invest in companies which are not as established as those available under EIS, as a result, the tax breaks are more extensive:

  • Income Tax relief is 50% under SEIS – Under EIS the relief offered is 30%
  • No Capital Gains Tax
  • No Inheritance Tax
  • Loss Relief
  • Capital Gains Reinvestment Relief – If you have recently paid CGT on any other investments, 50% of these can be reclaimed if the money id reinvested into a SEIS compliant company

The protection on investment works in such a manner that if – after the three year qualification period – the investment completely fails, the investor can claim back up to 86.5% of the investment using the various tax breaks available.

The maximum amount that can be invested under the SEIS in any one tax year is £100,000, and investments can be made via a crowdfunding website or an angel network. Alternatively an investor can source a company for themselves, although the HMRC must consider that there is no connection between both parties in order for the deal to be SEIS compliant. Before investing, all due diligence should be carried out to ensure that the company is eligible for SEIS.

The scheme has already resulted in some high-profile investments in start-ups with the potential to become successful ventures. More and more investors are looking to SEIS as a potentially rewarding method of investment, cutting down on risk of losses, and potentially having involvement in some exciting projects.

Learn how to make the most out of the SEIS by purchasing the SEIS Guide here