The Seed Enterprise Investment Scheme (SEIS) is a great tax break for investors, but just how do you find a company that needs your cash?
SEIS is run by HM Revenue & Customs (HMRC), but no list of companies eligible for investment is published, leaving new start firms and investors who want to link up in the dark about each other.
So far, around 2,000 start-up companies have gained approval to run a SEIS from HMRC.
One place to start the search is online with a SEIS fund manager.
Several firms offer managed SEIS funds that spread the risk of investment across several start-up companies in different sectors.
Managed fund warning
But managed funds come with a warning. The managers will take a slice of cash for setting up and running the fund that will reduce returns of a successful investment.
Many more experienced investors prefer to go direct to a start-up company.
Sourcing the right company this way is a lot harder. One place to look is sifting pitches on crowdfunding web sites.
A good idea touted for crowdfunding is generally eligible for SEIS funding if it is rooted in technology, pharmaceuticals or even hotels, pubs and restaurants.
Prime candidates are businesses that already have HMRC pre-approval to run a SEIS – but this is just an indicator the business meets the qualifying rules to join the scheme and is not a cast-iron guarantee investors will pick up those lucrative tax breaks.
SEIS tax incentives
In return for parting with up to £100,000 in the first year of the three year SEIS, the investor receives:
Shares in the company
A 50% income tax reduction worth up to £50,000 that is not based the investor’s marginal rate of tax but offered to all investors
A 50% capital gains tax exemption on assets sold in the tax year that are transferred into the SEIS
No capital gains tax on their SEIS equity stake
Loss relief against other income if the SEIS company fails at the end of the three years
To benefit from these incentives, the company has to operate within the SEIS rules for three years.
At the end of that time, investors should have a clear exit route in sight – which can include moving up to an Enterprise Investment Scheme (EIS) to grab more funding for growth. Watch out though, as EIS tax incentives are nowhere near as generous as those offered for a SEIS.
Seed Enterprise Investment Scheme Guide
To get the full picture about the SEIS, you can now download the Seed Enterprise Investment Scheme Guide here which has been written by industry experts and researchers and compiled in an easy to understand format. Covering the below topics
