Attractive Tax Reliefs  | Download Information | SEIS Investments

SEIS INVESTMENTS ARE COMPLEX PRODUCTS WHICH SHOULD BE CONSIDERED AS BEING HIGHER-RISK INVESTMENTS, AND ARE NOT SUITABLE FOR ALL INVESTORS. THEY MAY BE APPROPRIATE AS PART OF A DIVERSIFIED PORTFOLIO, GIVING ACCESS TO AN ALTERNATIVE ASSET CLASS, BUT MANY INVOLVE LONG TERM INVESTMENTS AND THEREFORE SHOULD BE CONSIDERED ILLIQUID AND UNSUITABLE FOR UNPLANNED OR EARLY CAPITAL WITHDRAWALS.

Part of the attraction of funding start-ups is an array of tax reliefs to encourage investment into new businesses, significantly reducing risk and increasing return on investment.

new-reliefs-graphic-copy

These tax reliefs are cumulative, for example, a higher rate tax payer, making a £50,000 investment could benefit thus:

Investment

£50,000

Income tax relief @ 50%

£25,000

CGT re-investment relief on £25,000 @ 20%

£5,000

Therefore the net investment is £20,000 and reliefs (here shown including GCT re-investment relief) are 60%.

Should the company fail, a further income tax relief on the net investment is available, in this example:

Original investment

£50,000

Original tax reliefs

£25,000

Loss relief, for a higher rate tax payer @ 45%

£11,250

Therefore the total relief is £36,250 or 72.5% of the original investment. (This can even be greater if the CGT re-investment relief is on a 28% CGT rate.)

It is advised to consult a tax professional to check on eligibility, timing and rates of tax reliefs.

Company criteria

A qualifying company can raise £150,000 in funding covered by SEIS reliefs. Broadly speaking a company will qualify if they, at the point of shares being issued, have:

  • less that 2 years’ trading
  • less than £200,000 in gross assets
  • fewer than 25 full time employees (or part time equivalent)
  • a ‘qualifying trade’: most trades are qualifying, but some, such as some financial services and dealing in land & property development (including property intensive activities such as hotels or nursing homes) are excluded.

Investor criteria

An investor can make multiple SEIS investments. The maximum amount on which an investor can obtain SEIS tax reliefs in any tax year is £100,000. Each spouse or civil partner has his or her own limit of £100,000 and they are not aggregated.

SEIS investors are permitted to carry back their investment to the previous tax year, so long as they have not used their individual limit in the previous tax year. Therefore, if investors have not used any of their £100,000 limit for the tax year ended 5 April 2017, then they could carry back up to £100,000 of their investment to that tax year. This could make a £200,000 investment the most tax efficient (or £400,000 across two spouses).

Further context

The Enterprise Investment Scheme (EIS) was set up in 1994 and continued to be supported through Labour governments. It has since been made more attractive by the Conservative government and has established itself as a part of tax legislation.

The Seed Enterprise Investment Scheme (SEIS), established in 2012, is an extension of EIS and offers the higher levels of reliefs for investment into the earliest stage businesses. In the 2015/16 tax year, 2,225 companies raised £170 million through SEIS*.

For the official view, HMRC publishes comprehensive guides to the rules around SEIS & EIS.

* source: HMRC, EIS & SEIS April 2017 – Statistics on companies raising funds

THIS WEBPAGE HAS BEEN APPROVED AS A FINANCIAL PROMOTION FOR THE PURPOSES OF S21 FINANCIAL SERVICES AND MARKETS ACT 2000 BY AMERSHAM INVESTMENT MANAGEMENT LTD WHICH IS AUTHORISED AND REGULATED BY THE FINANCIAL CONDUCT AUTHORITY FRN 507460. SEIS INVESTMENTS MAY PLACE YOUR CAPITAL AT RISK AND THE VALUE OF THEM MAY GO DOWN AS WELL AS UP AND AN INVESTOR MAY NOT GET BACK THE AMOUNT HE OR SHE INVESTED. THE TAX TREATMENT OF THE INVESTMENTS DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH INVESTOR AND MAY BE SUBJECT TO CHANGE IN FUTURE. INVESTORS SHOULD SEEK QUALIFIED PROFESSIONAL ADVICE BEFORE INVESTING. THIS COMMUNICATION DOES NOT CONSTITUTE AN OFFER TO YOU BY AMERSHAM INVESTMENT MANAGEMENT LTD. AN INVESTMENT IN THE START-UP SERIES SEIS FUND ONE MAY ONLY BE MADE IN ACCORDANCE WITH THAT FUND’S INFORMATION MEMORANDUM AND APPLICATION FORM.