The Seed Enterprise Investment Scheme (SEIS) is a little known tax break that can save property investors thousands of pounds when they dispose of land, homes or buildings.
SEIS offers investors in start-up businesses reduced income tax and capital gains tax when they take an equity stake of up to £100,000 in fledgling business.
“The only drawback is the deal ties up cash for three years – but in that time can cut income tax and capital gains tax bills by half,” writes Stuart.
SEIS was introduced by Chancellor George Osborne in Budget 2012 and is monitored by HMRC. The aim is to provide much needed capital for businesses after the flow of funds from banks dried up in the credit crisis.
According to Stuart, the main tax reliefs on investment are:
- Income tax paid is reduced by 45% regardless of the rate the tax is paid, so the offer applies to basic and higher rate taxpayers
- Any capital gains tax due on assets sold for a SEIS investment automatically pick up a 50% tax exemption on the cash that goes into the SEIS
Up to £100,000 can be invested in a SEIS each year, but if the CGT bill is more than £100,000, the balance is still subject to CGT at the full rate.
“SEIS investments are pre-screened by HMRC to make sure they meet tough guidelines – and one makes clear investors cannot put cash into a property company,” says Stuart.
“At the end of the three-year tie-in, the exit is to sell the shares. If the value of the equity stake has increased, the sale of shares is exempt from capital gains tax.
“If the company fails, the investor can write off the investment by setting the loss against other income.”
The tax break has a wider draw than just buy to let property – holiday lets, houses in multiple occupation (HMOs), uncommercial lets, land and commercial property all drop into the net as well.
“A similar tax break is available through the Enterprise Investment Scheme (EIS), which allows larger investments – but this does not come with such generous tax reliefs as SEIS. EIS defers rather than mitigates capital gains tax,” says Stuart Smith.