SEIS, EIS And VCT Compared Side-By-Side

As the year-end approaches, it’s time to revisit the tax benefits of schemes set up by the government to bolster the finances of start-up companies.

Since the financial crisis, banks have almost stopped lending to risky businesses that cannot show a sparkling trading history.

To encourage investors to stake their money directly into these companies, the government runs several investment incentives – the Seed Enterprise Investment Scheme (SEIS); Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT).

The investment year runs from April 6 to the following April 5, so the door for the current 2018-19 tax year is only open for a short while.

Many investors look to SEIS or EIS for tax incentivised investment once they have maxed out pension savings – VCT is a less popular option.

Why invest in start-up businesses?

Remember SEIS and EIS investment allowances are separate from each other and pension lifetime allowances and annual contribution caps, so investors can top up their savings without worrying about how they impact money set aside in other schemes.

A model investment stack would start with a pension, then SEIS and if both hit maximum contributions, and EIS would kick in to sweep up any extra cash.

Between them, the investments add-up to £1.64 million – although most investors would be higher or additional rate taxpayers with pension contributions restricted to as low £10,000 a year rather than the maximum of £40,000.

Start-up and growing businesses typically look for SEIS, EIS and VCT investments as they have difficulties raising money elsewhere. These investments are risky, but the potential for high returns is also greater.

SEIS, EIS and VCT compared

Each scheme operates slightly differently, so here are the investment and tax relief pros and cons laid out side-by-side for comparison:

Income tax relief on annual investment50%30%30%
Maximum annual investment£100,000£1 million£200,000
Tie-in period to gain tax relief36 months36 months60 months
DividendsTaxableTaxableMostly tax-free
Income Tax carry backYesYesNo
CGT relief on disposal of sharesYesYesYes
Loss reliefYesYesNo
Inheritance Tax Business Property ReliefYesYesNo
Companies receiving investment8,44028,000
Investment£799 million£18 billion£7 billion

Source: HMRC

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