SEIS & EIS
The Seed Enterprise Investment Scheme (SEIS) is designed to help your company raise money when it’s starting to trade. It does this by offering tax reliefs to individual investors who buy new shares in your company.
SEIS & EIS
The Seed Enterprise Investment Scheme (SEIS) offers great tax efficient benefits to investors in return for investment in small and early stage start-up businesses in the UK.
SEIS was created to boost economic growth in the UK by promoting new enterprise and entrepreneurship. It is designed to help your company raise money when it’s starting to trade. It does this by offering tax reliefs to individual investors who buy new shares in your company.
The Enterprise Investment Scheme (EIS) is designed so that your company can raise money to help grow your business. It does this by offering tax reliefs to individual investors who buy new shares in your company.
You can receive investment under EIS as long as it’s within 7 years of your company’s first commercial sale.
Tax Benefits Of A SEIS
Income tax relief: Individuals who subscribe for shares in a SEIS qualifying company will receive tax relief of 50% on the cost of the shares, which is offset against the individual’s Income Tax liability for the year in which the investment is made. They can also carry-back the relief to the previous year if the current year is fully utilised.
For example, if you invest £50,000 you receive £25,000 back immediately in the form of income tax relief; effectively reducing your capital at risk to half.
Capital gains tax exemption: After the initial three year investment period, if you sell your shares in the SEIS business, you will be exempt from capital gains tax on any gains you have made.
For example, if your company does well and increases in value, with your £50,000 shares now being worth £120,000; if you sell your shares there is no capital gains tax on the £70,000 gain.
Inheritance tax relief: Inheritance Tax relief against the entire value of the shares two years after the date of the initial purchase. This means that the shares which are passed down to your children or other beneficiaries will be outside the scope when calculating inheritance tax (currently taxed at 40% in most cases).
CGT reinvestment relief: If you have other investments separate from SEIS, and you decide to cash these in to reinvest in a project that qualifies for the scheme, 50% of that gain is exempt from CGT.
Loss relief: If the shares are disposed of at a loss, you can elect that the loss be set against any income tax of that year or of the previous year.
What Is The SEIS Relief Value?
You can receive a maximum of £150,000 through SEIS investments.
There are various rules you must follow so your investors can claim and keep SEIS tax reliefs relating to their shares.
For larger investments, the EIS scheme can be utilised whereby you can raise up to £5 million each year, and a maximum of £12 million in your company’s lifetime.
Tax reliefs will be withheld, or withdrawn, from your investors if you do not follow the rules for at least 3 years after the investment is made.
Which Companies Can Use A SEIS?
Your company can use the scheme if it:
- Carries out a new qualifying trade
- Is established in the UK
- Is not trading on a recognised stock exchange at the time of the share issue
- Has no arrangements to become a quoted company or a subsidiary of one at the time of the share issue
- Does not control another company unless that company is a qualifying subsidiary
- Has not been controlled by another company since the date of your company being incorporated
Your company and any of its subsidiaries must:
- Not have gross assets over £200,000 when the shares are issued
- Not be a member of a partnership
- Have less than 25 full-time equivalent employees in total when the shares are issued
If you’ve received investment through the Enterprise Investment Scheme (EIS) or from a venture capital trust, you cannot use SEIS.
Risk to capital
It is important, as part of the conditions to qualify for SEIS/EIS, that the capital being invested has a genuine risk. This is intended to exclude artificial investments benefitting from the tax advantages.
‘Risk’ is not defined and will be a question of fact on a case-by-case basis.
How We Can Help
Get in touch to have an initial consultation with us where we can understand the investment you are making and ensure it is eligible to qualify. We can then advise on the most effective method of going forward with the investment.
We will complete the entire registration process from start to end and keep you updated every step of the way, including all relevant applications to HMRC.
Our help doesn’t stop there, we will continue to provide ongoing support including assisting you, or working with your accountant, to file the self-assessment in order to make the appropriate claims for tax relief.