Savers who have used up their pension and ISA limits already this year but still have cash to invest can look at the tax-effective Seed Enterprise Investment Scheme (SEIS).
SEIS offers higher risk investments balanced against superior tax reliefs.
The government-backed scheme allows startup entrepreneurs looking for equity investors to offer stakes in companies pre-approved by HM Revenue & Customs (HMRC).
Investors can plough in up to £100,000 cash and pick up a 50% income tax reduction, regardless of their marginal rate of tax.
And the investment has no impact on pension or ISA tax reliefs.
Tax reliefs
SEIS gets even better for investors.
This tax year, investors who sell other assets to raise cash for a SEIS input also get a deferred capital gains tax.
During the investment, any growth in value of SEIS shares is tax free.
At the end of the three-year term, any sale of shares is tax-free, while if the company has failed or the shares make a loss, HMRC also allows investors to offset their balance that’s in the red against tax on other income.
Overall, total tax relief throughout a SEIS can add up to as much as 78% of the original investment – so that £100,000 in really only costs £22,000.
Another bonus is SEIS shares are potentially exempt transfers for inheritance tax under business property relief rules.
In an election year and Chancellor George Osborne’s Budget 2015 announced for March 18, the clock may be ticking on some capital gains tax reliefs for SEIS.
Budget restrictions
Investors will only have 16 days between the Budget and the end of the tax year on April 5 to make a SEIS investment decision, which leaves little time for due diligence.
The other issue for investors is how current SEIS have performed.
As the SEIS contract last three years and they were introduced on April 6, 2012, the first results are expected after the start of the next financial year.
Some SEIS fund managers are reporting investors have doubled their money, which is all well and good. The trouble is, the same managers are also likely to have suffered losses, but these have not been heralded as they do not attract investors.
HMRC figures suggest at least £85 million has gone into more than 1,100 SEIS companies since 2012, but due to the time lag in reporting results and the fact that no SEIS has yet run the full course, further analysis of the figures is impossible.
