It’s not often the government guarantees investment – and turning down the chance to participate when Whitehall does seem churlish.
Seed Enterprise Investment Schemes (SEIS) are the cool, younger and sleeker version of the older and more staid Enterprise Investment Schemes (EIS).
Cooler, younger and sleeker implies a dash of risk and unreliability, but that’s not the case with SEIS.
For this tax year – which is counting down fast to end on April 5, 2013 – the government has pledged any money pumped in to SEIS by a top rate taxpayer is safer than houses.
How? If the company utterly failed, 50% tax payers could end up with income tax and capital gains tax reliefs adding up to 103%.
100% guarantee
Of course, that collapse would have to happen in this tax year – but if the disaster was delayed until the next tax year, when those top rate tax payers will have a rate of 45%, they will stick pick up reliefs of slightly over 100%.
The calculation is not straightforward – the maximum reliefs come from 50% income tax relief on a maximum £100,000 SEIS investment in the tax year, plus a 28% CGT exemption on any assets sold in the year to finance the investment.
The only drawback with SEIS, according to critics, is the amount of money investors can put in – £100,000 in the tax year and a maximum £50,000 after that.
The cost of due diligence and setting up the deal on top of the investment can add up to a considerable amount. If the investor goes through a couple of abortive inquiries before settling on the right SEIS, this could end up as an expensive proposition.
White knight scheme
That’s why SEIS have got off to a stuttering start. A simple cost benefits analysis discourages investors and makes EIS or a venture capital trust (VCT) a better proposition.
Chancellor George Osborne envisaged SEIS as a white knight scheme to reinvigorate business funding.
The aim is for wealthy investors to bankroll start-ups still in research and development. These companies have no trading history and little chance of raising cash from traditional business funders, like banks.
Unfortunately, his vision is not shared by investors who care more for yields and returns rather than rose-tinted views of entrepreneurial partnerships and grand designs for the next Facebook or Google.
Osborne’s hope was that sponsoring investment in ideas would spark innovation in medicine, technology and creative media, but investors lack the confidence to put their money in SEIS in great amounts despite the guarantees.
