Chancellor Rachel Reeves is more likely to enhance benefits for investors in small companies and start-ups rather than to curb venture capital incentives.
Labour’s own Start-Up Funding Ecosystem Review recommends a review of the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) to ensure investors are receiving adequate incentives.
The options put forward in the review include:
- Lifting the limits on investment or how much capital companies can raise
- Changing the qualifying period for investments from 36 months
- Considering if SEIS\EIS rules exclude important innovative sectors
Labour says: “The review was tasked with giving us a road map to get there, to ask the difficult questions and present solutions: about incentives, access to capital, how to encourage more spin outs from our leading universities, and how to make the most of entrepreneurial potential across the whole country.”
Support From Rachel Reeves
Reeves voiced her support of incentivised business investment before taking office and appears to prefer extending SEIS and EIS rather than clawing back tax savings to contribute towards filling her £40 billion Budget 2024 black hole.
SEIS is a government-backed venture capital investment that offers generous tax incentives for investing in qualifying UK companies.
The aim is to raise cash from outside traditional debt or loan funding for innovative companies without a trading history.
SEIS is a big risk for investors, but it’s a high risk, high reward opportunity.
SEIS Tax Breaks
SEIS tax breaks are considered the best in the world for investors and include:
- 50 per cent tax relief on a maximum annual investment of £200,000 a year
- Carry-back to earlier tax years for investors with unused allowances
- A capital gains tax (CGT) exemption on any growth in value of shares once investors have held them for 36 months
- CGT roll-over relief that slices 50 per cent from the sale of another asset if the money is reinvested in SEIS
- Loss relief can sweeten any deal that turns sour and loses money
- SEIS investments can be passed on without any inheritance tax if the investor dies while holding shares
SEIS financial incentives run alongside tax years, so an investment between April 2024 and April 2025 is credited against tax paid in 2024-25 unless carry-back is involved.
SEIS By Numbers
The latest numbers from the Office for National Statistics (ONS) for the 2022-2023 tax year show 1,815 companies raised £157 million in SEIS investment.
Some £60 million – representing 39 per cent of all funds invested in SEIS – went to technology companies.
The data shows two out of three companies raise SEIS investments of more than £50,000, while 41 per cent raise more than £100,000.
HM Revenue & Customs (HMRC) disclosed that 8,065 SEIS investors claimed tax relief on SEIS investments in 2022-2023. Most (55 per cent) invested less than £10,000.
Investing In A SEIS Company
To stake money in a SEIS company, investors should:
- Check you are eligible to join the scheme. Investors must be over 18 and pay income tax in the UK. You cannot work for the company you want to invest with nor be a close relative of an employee – but directors are not restricted from investing in their businesses.
The important point for expats is they do not have to live in the UK but must pay tax there.
- SEIS investments can be made directly to a company, through a fund or a share portfolio.
- Research the company to make sure it is SEIS eligible – platforms like Crowdcube can help.
- Confirm SEIS advance assurance. Ask for the HMRC certificate confirming the investment qualifies for SEIS tax breaks.
- Invest in the company, but do not buy more than 30 per cent of the company’s shares, otherwise you have a ‘substantial interest’ in the company and are excluded from SEIS
- Make sure you get a SEIS3 form from the company. HMRC will not allow tax relief without a self-assessment tax return accompanied by the form.
SEIS Investment FAQ
EIS is the Enterprise Investment Scheme. EIS operates in a similar way to SEIS, but allows larger investments and offers different terms and conditions on tax breaks.
The conditions for SEIS investment are:
– Investors must be over 18
– May be directors but not employees of the SEIS company they invest in
– Must not hold more than 30 per cent of the SEIS company’s shares
– Investors do not have to be UK resident buy must have a UK income tax liability as an individual
No, investors cannot claim more relief than tax paid.
No, SEIS is a government-backed scheme supervised by HMRC, while qualifying companies are issued with advance assurance certificates to prove they meet the rules.
Investors can claim tax relief against a £200,000 a tax year investment allowance. There is no limit on the number of years someone can make SEIS investments.
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