The Seed Enterprise Investment Scheme (SEIS) was launched by the United Kingdom government on 6 April 2012 in order to encourage investors to finance start-up’s by providing tax breaks for backing projects they may otherwise view as too risky.
The SEIS offers both income tax and capital gains tax relief to qualifying investors who subscribe for shares in qualifying companies.
- Investors can obtain 50% relief for income tax on the cost of shares, on a maximum annual investment of £100,000.
- No capital gains tax is paid on profits earned on shares held for more than three years. Capital gains which are realised before three years has expired, but which are reinvested into qualifying SEIS shares, will also be exempt from capital gains tax. Again, the annual limit is £100,000.
- Loss relief – Should the company go bankrupt, investors may claim loss relief on their investment which is equal to half of their total investment multiplied by their tax rate.
- 100% inheritance tax relief (provided the investments have been held for at least two years at time of death).
There are a number of complex rules about whether investors and companies can qualify and some of the main rules are listed below. In addition, for shares to qualify, they must be issued wholly for cash and be held by the investor for more than three years. They cannot hold any preferential rights.
The company cannot
- Raise more than £150,000 in total through SEIS
- Have more than 25 employees in total
- Have assets worth more than £200,000 before the shares are issued
- Have been trading more than 2 years prior to issuing the shares
- Operate in a trade or industry outside of the HMRC SEIS / EIS permitted list
The investor cannot
- Be an employee prior to the share issue, unless also a director
- Hold more than 30% of shares