SEIS And EIS Tax Breaks Compared

SEIS And EIS Tax Breaks Compared

New investors looking at staking some cash in tax efficient Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) can win some great tax breaks.

However, the two schemes have some big differences even though EIS is the bigger brother of the SEIS.

To help investors compare the two, here are some key points common to both schemes:

  • Employees and assets

EIS – Companies are allowed up to 250 employees and assets on the balance sheet of up to £15 million

SEIS – Companies must not have more than 25 employees or assets worth more than £200,000

  • Investment

EIS – Investors can stake up to £1 million a year

SEIS – Investors can stake £100,000 in a tax year and a maximum of £150,000 during the three year term of SEIS

  • Income Tax relief

EIS – 30% in the tax year of the investment or carried back to the previous tax year

SEIS – 50% in the tax year of the investment or carried back

  • Capital Gains Tax relief

EIS – CGT is deferred on gains rolled into EIS

SEIS – 50% reinvestment relief on assets sold to raise cash for a SEIS investment  is in place for the 2013-14 and 2014-15 tax years

Providing shares are held in a qualifying EIS or SEIS for three years, the value of any shareholding can also grow free of CGT

Chancellor George Osborne envisaged companies would start as a SEIS and graduate to EIS when they wanted to raise funds to expand after a successful incubation period.

Facts and figures

Finding a SEIS or EIS investment involves some research as no central list of candidates is available.

Investment is either direct – often through a crowdfunding platform – or indirect through a fund manager.

Many investors spread their risk through a fund, which will have stakes in several SEIS or EIS companies in different sectors. Funds also take in smaller investments of £1,000 or £2,000 minimum, while direct investment may require better knowledge of a specific business or sector and taking a larger stake in a company.

According to the latest figures from the Office of National Statistics, 20,275 companies raised £9.7 billion through EIS between 1993 and 2012, while 1,100 companies took in £88 million of investment through SEIS in 2012-13.

SEIS was introduced in April 2012 and the first companies will emerge from the scheme within a few weeks.

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