Investors with a taste for risk can hedge their bets by considering putting money in to a Seed Enterprise Investment Scheme (SEIS) start-up business.
SEIS companies are typically new start firms at the cutting edge of technology, the internet, medicine and pharmaceuticals.
They find attracting investment a problem as they fall in a funding black hole.
Venture capitalists find the amounts they need to small for their liking, while banks are not keen on lending money because of the risks such fresh start businesses present.
To fill the void, the Chancellor George Osborne introduced SEIS in Budget 2012.
To spread the word about the generous tax breaks on offer to SEIS investors, the Department for Business, Innovation and Skills (BIS) has put together 10 reasons why investors should consider SEIS:
- 50% income tax reduction – for every £1 an investor puts into a SEIS, HM Revenue and Customs offers a 50p tax reduction, regardless of the taxpayer’s top rate of income tax.
- The maximum investment in a SEIS for a single tax year is £100,000 – which means a taxpayer can reduce their income tax by up to £50,000
- Investors selling other assets to raise cash for a SEIS can also claim a capital gains tax exemption on any reinvested gains
- No capital gains tax is paid on the disposal of SEIS shares, as long as the firm has qualified as a SEIS for the preceding three years. If the shares are sold at a loss, this can be set off against tax on other income.
- SEIS is only available to companies that have not received money from the Enterprise Investment Scheme (EIS) or Venture Capital Trust (VCT)
- SEIS companies must be new starts – defined as less than 24 months old
- A SEIS company can only take in £150,000 in investment over two or more tax years. If the directors want more, they have to consider the Enterprise Investment Scheme (EIS) or a venture capital trust (VCT)
- A company can only qualify for SEIS with assets of £200,000 or less at the start of the funding round and with no more than 25 employees on the payroll
- Several options are available for putting money into a SEIS
- Approaching a fund manager working with one or more SEIS company
- Coming to a private agreement with a company
- Employees, their family and friends can pool cash for a SEIS, with some limits
- Many SEIS start-ups pitch for funding through crowdfunding websites which pool small investments from a large group of investors
- HMRC maintains a lot of detailed information about SEIS companies and investments on line