Investors get many notable tax incentives when partaking in the ever popular Seed Enterprise Investment Scheme (SEIS), and one of the most attractive is the prolonged relief on Capital Gains Tax when reinvested.
Initially this reinvestment relief was only available for the first year after a return was realised, however since April 2013, it has been made available for an extended two years providing the gains are reinvested in seed companies.
The reinvestment relief works on the basis that although the Government are perhaps being generous (they offer 100% in year one, and 50% CGT reinvestment relief in year two), chargeable gains pale into insignificance when the potential long term strength of the project is researched.
Driver
The SEIS was launched in 2012 and was designed to assist small, higher risk, early stage UK companies source funding in what is a very volatile sector. Many barriers existed previously to being able to get the vital investment required to encourage growth, the SEIS has changed that. The reason it is such an important scheme from a national financial perspective is that the start-up sector – if performing well – can and should be an extremely pivotal driver in the resurgence of the British economy.
CGT reinvestment relief – and the subsequent extension to include relief in the second year – was introduced to keep the momentum within the scheme, and investors who have profited from the initial run of the scheme will undoubtedly be more than happy to keep their interest in the initiative going by reinvesting.
Chargeable gains will be tax free up to £100,000, which is the maximum a single investor can put into the scheme anyway, and despite critics commenting that the extension of generosity regarding the relief suggests that perhaps the popularity of the scheme hasn’t matched up to expectations, the success of a variety of high profile tech start-ups from the UK now going global after SEIS funding was secured, suggests otherwise.
Efficient
The SEIS is the most tax efficient module available for investors, both EIS and VCT’s see capital gains tax merely deferred through reinvestment, not written off entirely. Let us not forget that the scheme also gives income tax relief on 50% of the investment amount, which could be potentially lead to a tax bill with a reduction of £50,000 annually.
While the scheme is still relatively new, perhaps the choice of companies qualifying for the scheme has not always been of the highest standard, but this is perhaps down to a lack of awareness amongst entrepreneurs. If the right company comes forward however, there is no doubt that what the SEIS offers from an investor perspective, is good business.
