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 designed to boost economic growth in the UK by promoting new enterprise and entrepreneurship.
The scheme was introduced in the Chancellor George Osborne’s 2011 Autumn Statement (and came into force in April 2012) which heralded a big shake up of tax incentives for investors, with the Enterprise Investment Schemes and Venture Capital Trusts also being revamped.
Generally held to be one of the most successful government-backed schemes ever created, SEIS was designed to boost economic growth in the UK by promoting new enterprise and entrepreneurship.
Since the Seed Enterprise Investment Scheme (SEIS) was launched in 2012 to 2013, 13,800 companies have received investment and around 1.4 billion of funds have been raised.
In the 2020/21 Tax Year 2,065 companies raised a total of £175 million of funds under the SEIS scheme.
In the same tax year, 9,195 investors claimed Income Tax relief on Self-Assessment forms for SEIS, compared to 8,545 investors in 2019/20.
The tax breaks are worth up to 64% of the amount invested, this includes income tax relief and capital gains tax relief.
The investor can also choose to treat some or all of the investment as being made in the previous tax year for the purposes of income tax relief, and offset 50% of the value of the investment against their income tax liability for the tax year immediately previous to the tax year in which the investment was made.
Watch the short video above explaining SEIS
Investors can claim up to 50% SEIS Income Tax Relief on subscriptions against income tax paid on total investments up to £200,000.
The carry back facility in SEIS serves to extend the period for which CGT and / or income tax investment relief can be accessed. For example, investments made in the 2022/23 tax year can be ‘carried-back’ and applied to liabilities occurred in the previous 2021/22 tax year.
Capital Gains (profits) are tax free provided that:
UK Tax Payers can obtain an exemption for CGT liabilities of 50% of the investment. This allows them to obtain further CGT relief of up to 14%. Therefore, the SEIS Income Tax Relief and CGT Reinvestment Relief combine to give a 64% in tax reliefs.
Under circumstances where the shares an investor possesses in an Investee Company are sold at a loss (or in the event the investment fails completely), there are provisions to offset those losses, reducing income tax or CGT. This would however depend on the individual Investors’ circumstances and the overall limits as to how much can be offset. For top-rate taxpayers loss relief is 45% on their “actual” investment (the original amount less the 50% income tax relief) which would be 22.5% of the total.
100% IHT Relief may be claimed on an Investor’s estate in most circumstances once Qualifying Shares have been held for two years.
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EIS and SEIS are extremely important parts of the investment ecosystem. Since their inception, 52,000 start-ups have used the SEIS and EIS to secure nearly £27billion of investment up to 2021. It is thanks to EIS and SEIS that the UK has such a vibrant start-up scene, and many founders believe that they would not have got the private investment needed to grow their businesses without the schemes. The SEIS and EIS are the leading schemes of their kind. They are crucial to patient capital and have helped to position the UK as a world leader in innovation and entrepreneurship.