The Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) are UK government initiatives designed to encourage investment in early-stage and growth-oriented businesses
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By providing tax incentives to investors, the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) help businesses to access much-needed funding.
Although they have the same goal, the two schemes differ in terms of the companies they cover and the amount of tax relief they offer.
What is SEIS?
SEIS is a government-backed scheme that incentivises private independent investment into very early-stage companies.
These start-ups tend to carry more risk than traditional investments like property and the stock market, but may go on to innovate, create jobs, and grow the economy – all things the Government is keen to promote. As a reward, the UK offers very appealing tax incentives to help lower the risk involved in start-up investing.
What are the key benefits for SEIS investors?
SEIS and Income Tax Relief:
Under SEIS, you get 50% back of the amount you invest as a reduction in your Income Tax bill.
For example, say you invested £10,000 in a SEIS-eligible company, when you file your tax return, list the details of your SEIS-qualifying investment to reduce your Income Tax bill by £5,000.
You can invest up to £200,000 per year across SEIS businesses. (In April 2023, this limit increased from £100,000.)
Capital Gains Disposal Relief:
When you come to sell your shares, you would usually pay Capital Gains Tax on any profit made. With SEIS, you retain all your profit, paying 0% CGT tax no matter how small or large the eventual exit.
Remember, though, there will be restrictions when you come to sell your SEIS shares – such as a minimum holding period of three years.
Capital Gains Reinvestment Relief:
You can offset 50% of Capital Gains Tax charges when you reinvest taxable profit made to a non-SEIS-eligible company into a SEIS-eligible company.
In the unpredictable world of start-ups, not every venture succeeds. However, SEIS provides a safety net! If you haven’t made a profit when you come to sell your shares, you can set that loss against your Income Tax bill.
The amount you can claim as loss relief is your at-risk investment (the amount of money you lost minus the amount you’ve already received in Income Tax relief) multiplied by your Income Tax rate (20%, 40%, or 45%).
Inheritance Tax relief:
SEIS shares aren’t subject to Inheritance Tax, so long as they have been held for two years.
When can you claim SEIS tax relief?
You can claim SEIS tax relief up to five years from the 31st January following the tax year in which you made the investment. It’s 31st January because that’s the deadline for self-assessment tax returns.
If you don’t use all of your SEIS allowance (£200,000 per year), you can’t carry forward the SEIS limit to the next year. But you can carry back SEIS tax relief to the previous year, if you haven’t already invested the maximum allowed under the scheme in that year.
What companies can you invest in under SEIS?
To meet SEIS status, companies must:
- have been trading for less than three years.
- employ fewer than 25 people.
- have no more than £350,000 in gross assets.
- have a permanent establishment in the UK.
- not carry out an excluded trade (e.g. banking, insurance or property development).
You can raise up to £250,000 (up from £150,000 last year).
How is EIS different?
EIS covers a broader range of companies, including those at later stages of growth. It is not restricted to seed-stage businesses and is designed for medium-sized start-ups.
To meet EIS status, companies must:
- have been trading for less than seven years.
- employ fewer than 250 employees.
- have no more than £15 million in gross assets.
- have a permanent establishment in the UK.
- not carry out excluded trade (e.g. banking, insurance or property development).
Under EIS, you get 30% back of the amount you invest as a reduction in your Income Tax bill, and you can invest up to £1 million per year across SEIS businesses.
As with SEIS, the Capital Gains Tax, the Inheritance Tax Relief and the Loss Relief are all the same!
Has this been useful? To find out more, including information on SEIS and EIS Advance Assurance, click here.
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