Faced with an investment “equity gap” for small and early stage business seeking financing, Seed Enterprise Investment Schemes (SEIS) were launched in the tax year 2012/2013 to try and plug the deficit in the UK’s business landscape.
The SEIS legislation offers substantial tax reliefs for you as an investor, with the cost and risk related to early stage businesses investment greatly reduced.
Experienced investors fall under one of two categories: Certified Sophisticated Investors (either you are a member of a business angels network or similar, have recently made an investment in an unlisted company, work or have worked in private equity, or are a Director of a company with turnover of GBP 1 million or over) and High Net Worth Individuals (with a recent annual income of over GBP 100,000 or total net assets over GBP 250,000).
To ensure you are classed under one of the above categories, you can read the conditions within the Financial Services and Markets Act 2000 Order 2005.
If you do not believe yourself to be an experienced advisor, you may wish to read our supplementary article for beginners.
Conditions to be eligible as an SEIS investor
In order to qualify for SEIS investments and the related tax reliefs, you will need to ensure the following does not apply to you.
You cannot hold a substantial interest in the company (own over 30%), you cannot be an employee of the company other than Director, and all shares must be paid for in cash in full.
If you satisfy these conditions, you will receive the following benefits:
- An annual investment limit of £100,000 (and up to GBP 150,000 over a three year period).
- Income Tax Relief on your investment of up to 50%.
- An investor making capital gains (CG) in the current tax year will receive a 50% capital gains tax (CGT) relief if they reinvest those gains in either of the next two tax years.
- Complete exemption from CGT upon disposal.
Therefore as an experienced investor you may already hold investments which, by realising this year at a CG, you should be able to save CGT on your investments at the same time as substantially decreasing the investment cost under SEIS.
Conditions for the business
Just as an investor needs to meet certain criteria to qualify, a company must satisfy certain conditions too.
- The company should be permanently established in the UK.
- The company must need exceed 25 employees.
- At the time of the investment, the company should not have assets tallying above GBP 200,000.
In addition, certain business sectors do not qualify for SEIS investment – including hotels, care homes, and financial service providers. You should look on the HM Revenue and Customs’ list to ensure the company qualifies.
The next step
If you have any further question on the SEIS legislation, you should contact an independent financial advisor (IFA) experienced in either venture capital as a whole, or SEIS specifically.
In particular, an IFA will be able to outline how to stay within the parameters necessary to obtain the full tax reliefs for the duration of your investments.