With only a few weeks to go before the doors clang shut on this financial year, many serious savers have already maxed out their pension and ISA allowances and are looking for other tax-effective investments.
This is where the Seed Enterprise Investment Scheme (SEIS) steps from the shadows into the limelight.
SEIS is one of the most generous venture capital investments in the world for business angels.
Whether SEIS is for you depends on how much risk you are ready to take, how long you can tie up your cash and how much you want to invest.
The downside of SEIS is the companies looking for cash injections are start-ups with little or no trading history.
SEIS tax relief
The risk of a company going bust in the first three years is high – but the rewards can be great for those that survive the incubation period.
SEIS calls for investors to stake up to £100,000 a year in one or more companies pre-approved to join the scheme by HM Revenue & Customs. That approval doesn’t mean HMRC have done the usual due diligence on the business, just that the set up meets SEIS qualifying rules.
Investors must tie up the money for three years to qualify for the SEIS tax breaks.
Inbound, income tax relief on the £100,000 is offered at 50p in the pound up to a maximum relief of £50,000. This is covered as a refund against income tax paid in the year.
An investor staking £20,000 with a tax bill of £10,000 can cancel out the amount due as the SEIS relief is £10,000. If the tax bill was £12,000, the investor would be left with £2,000 to pay.
Other business angel investments
Outbound other tax benefits include no capital gains tax on share disposal at the end of the SEIS term or loss relief should a company go to the wall during the incubation period.
For investors with more than £100,000 to invest, other venture capital schemes are open until the end of the tax year.
The Enterprise Investment Scheme (EIS) offers 30% tax relief on investments of up to £1 million – plus CGT and loss reliefs.
Social Investment Tax Relief (SITR) is like EIS relief – 30% income tax relief on investments up to £1 million, but SITR covers loans as well as the equity stakes offered by SEIS and EIS.
Although all three business angel investments have their own rules and limits, the good news is they are in addition to pension and ISA quotas and do not impact any tax breaks they offer.