WELCOME NEWS FOR SEIS INVESTORS
Following the success of the Enterprise Investment Scheme (EIS) launched some 28 years ago in 1994, the Seed Enterprise Investment Scheme (SEIS) was introduced by the UK government on 6th April 2012. Designed to scale-up and help fledgling businesses raise funds, SEIS investments offer investors an attractive and powerful incentive in the form of generous tax reliefs and advantages.
The Key Differences Between EIS and SEIS
Criteria surrounding company eligibility, how much they can raise and the amount of investor tax relief are the main differences between EIS and SEIS. Whilst EIS provides investors with an upfront 30% income tax relief on shares held for more than three years, the scheme is used by larger and more mature companies. SEIS on the other hand, supports fledgling start-ups or very early-stage companies and to reflect this potential risk, UK tax payers enjoy greater tax breaks when investing in SEIS. These include:
- 50% income tax relief for current or previous tax year (from the date of the share certificate)
- 50% reinvestment relief—capital gains write off
- No inheritance tax after two years
- No income tax or capital gains on any profits from sale of shares
- Loss relief on any monies lost at the current tax rate
In order to benefit, UK tax residents must hold the shares for three years and can claim relief up to five years after the 31st January following the tax year in which the investment was made.
Although welcome changes have been announced for April 2023, currently, a company has to meet various criteria to qualify for SEIS investment. Most notably they are small and unquoted, have been trading and seeking inward investment for two years, own gross assets of less than £200,000 and have fewer than 25 employees at the time of investment.
How Investing in Fledgling Businesses Can Generate Huge Returns
According to HMRC, since SEIS was launched, 13,800 companies have raised seed capital from individual investors equalling around £1.4 billion in investment. Many of these leading businesses wouldn’t be in business today if it wasn’t for SEIS.
A typical example of SEIS success includes a business model based upon improving and disrupting traditional childcare. Koru Kids pairs parents with carefully selected nannies and after raising £14.1 million in funding, it is now London’s fastest growing childcare company, providing 15,000 childcare hours per month.
Another SEIS success story is the creator of ready-to-wear bridal gowns, Raishma. Supporting retail expansion via established concessions with big-name retailers such as John Lewis and House of Fraser, SEIS investment allowed the company to develop its strategy, support manufacturing, build its first e-commerce platform and open a central London store.
Government Growth Plan 2022
As a part of the government’s Growth Plan 2022, published on 23rd September 2022, in a bid to significantly reduce inflation and support short term growth, the good news continues. Chancellor of the Exchequer Jeremy Hunt and Prime Minister Rishi Sunak have extended the SEIS associated tax breaks and made them even more generous. The current annual limit for individual investors to put into a SEIS scheme each tax year is £100,000. However, from April 2023, the amount that an investor can claim SEIS relief on will increase to £200,000.
Equally, for the companies seeking investment, from next April, they will be able to raise SEIS within the first three years of trading, instead of two years and own less than £350,000 in gross assets as opposed to the current £200,000.
Fantastic News for Campaigners
Campaigning for years to secure the scheme’s future success, the Director General of the Enterprise Investment Scheme Association (EISA), Christiana Stewart Lockhart said:
“This is fantastic news for the industry and shows this government’s commitment to supporting entrepreneurs.”
She went on to add:
“From April 2023, companies will be able to raise up to £250,000 of SEIS investment, a two-thirds increase. To enable more companies to use SEIS, the gross asset limit will be increased to £350,000 and the age limit from two to three years. To support these increases, the annual investor limit will be doubled to £200,000. These changes will help over 2,000 companies a year that use the scheme to grow”.
Equally, the judge for Sustainable and Ethical Investment Awards, Martin Fox expressed his hope that advisers will now look more closely at these schemes as investments for their clients.
To learn more about SEIS, please visit our website and download your free guide.