The Seed Enterprise Investment Scheme (SEIS) is considered a world leader in raising start-up cash for entrepreneur with new business ideas.
Investing is straightforward and offers some generous tax breaks.
This FAQ looks at the basics of SEIS and how to make an investment.
What sort of investment is SEIS?
SEIS is a high-risk investment that injects seed capital into unquoted companies that have little or no financial data available for investors to assess.
Most are start-ups that lack a trading history but have the potential for high returns.
Who should invest in SEIS?
There’s no definition of a SEIS investor, but they do usually fit one of two types –
- Investors with no fear of start-ups who are willing to stake their cash against high risk, high return companies
- Wealthy individuals who have large income tax or capital gains tax bills to offset
Why SEIS instead of other investments?
Few if any other investments offer the generous tax breaks that come with SEIS.
Going in to SEIS, income tax relief offers investors up to 50% return of their maximum £100,000 stake that can be invested in a tax year – that adds up to £50,000.
Deferred capital gains tax means investors can put off the day when they pay the bill by rolling gains into another SEIS on exit.
On exit, any growth in share values is exempt of tax, while any fall in value is tempered by loss relief.
How long is money tied up in SEIS?
A SEIS investment is for three years for investors who want to maximise their tax breaks.
How can you invest in SEIS?
Investors can follow one of two paths or mix-n-match them both.
The most popular route is through a SEIS fund with a professional management team.
A fund will have access to deals that are otherwise closed to individual investors and will diversify an investment across several companies and business sectors to minimise risk of exposure to a single market.
Investment managers will also have carried out due diligence, which can be time-consuming and costly for an individual.
The downside is managed SEIS funds will make a management charge.
Individuals can make their own investments, but these are likely to cost more time and money than investing through a fund.
Some fund managers are paid to manage assets under management, while others are paid for fund performance. Investors need to understand the fee structure of any fund that they might use.