Attractive Tax Reliefs  | Register | 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.

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 that neither of the main parties would be likely to compromise.

The Seed Enterprise Investment Scheme (SEIS) , established in 2012, is an extension of EIS and offers even more attractive reliefs. In the 2013/14 tax year, 1,995 companies raised £148 million from 30,750 subscribers through SEIS.

Within some criteria, a company can raise £150,000 in funding covered by SEIS reliefs. Once a company receives assurances from HMRC on its qualification, investors benefit from a range of tax reliefs that significantly reduce their risks and increase their returns.

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 2016, 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).

Click on the icons below for an independent view of the reliefs available for SEIS investors, courtesy of our friends at the EIS Association. For the official view, HMRC publishes comprehensive guides to the rules around SEIS & EIS.

ATTRACTIVE TAX RELIEF

50% initial income tax relief: actual net cash outlay 50p in every £1

If an SEIS qualifying investment is held for at least three years from the date of issue of the shares, an individual (who holds no more than a 30% interest in the company) can reduce their income tax liability by up to 50% of the amount invested.

There is no minimum subscription and the maximum investment in SEIS qualifying companies which qualify for SEIS Income Tax Relief is £100,000 in the current tax year.

Income Tax Relief is offset in the appropriate year of claim, up to a maximum of the income tax liability. In other words, initial income tax relief could reduce your tax bill to nil. Individuals may elect to treat their subscription for SEIS shares as if made in the previous tax year, up to their maximum annual SEIS allowance, thereby effectively carrying income tax relief back one year. This assists an investor to maximise the relief available.

Thus an investor who had made no SEIS investment in a tax year may make SEIS subscriptions of up to £200,000 in the following tax year and elect to carry back £100,000 to the previous tax year to claim income tax relief for that year.

Spouses each have their own investment limit (although they will be aggregated together for the purposes of the 30% test referred to above).

This relief is usually passed to the Investor in the form of a tax rebate or, if requested of HMRC, via an adjustment in their PAYE code. The relief may only be claimed once the investor has received form SEIS 3 from the company.

CGT freedom: no capital gains tax to pay

No Capital Gains Tax (CGT) is payable on disposal of shares held for three years, provided the SEIS initial income tax relief was given and not withdrawn on those shares.

CGT reinvestment relief: potential exemption of 50% of an existing CGT bill

If an asset is sold and all or part of the amount of the gain is reinvested in SEIS qualifying shares, half of the amount reinvested may be exempted from Capital Gains Tax. To receive this relief you must subscribe for SEIS shares during the tax year in which the gain is made (or in the following tax year if the investor elects to carry back the investment to the previous tax year).

Relief is limited to the annual SEIS investment limit for each year (£100,000).

Investors must not hold more than a 30% interest in an SEIS company.

There are various circumstances in which a gain exempt by the reinvestment can become chargeable again within three years of the SEIS investment and individuals should seek advice about the events which would trigger the withdrawal of relief.

Loss relief: maximum exposure of 27.5p in every £1 for a 45% tax payer

Relief is available for SEIS shares which are disposed of at any time at a loss (after taking into account SEIS income tax relief which is retained). The loss can be set against the investor’s capital gains, or his/her income in the year of disposal or the previous tax year.

For losses offset against income, the net effect is to limit the investment exposure to as much as 27.5p in the £1, assuming the investor has a 45% marginal rate of income tax, if the shares become totally worthless. Alternatively the losses can be relieved against capital gains at a rate of up to 28% for higher rate tax payers and 18% for standard rate tax payers.

Inheritance tax relief: potential 40p saving in every £1

Shares in SEIS qualifying companies will generally qualify for Business Property Relief for Inheritance Tax purposes.

Relief can be at rates of up to 100% after two years of holding such investment, so that any liability for Inheritance Tax is reduced or eliminated in respect of such shares.

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.