SEIS tax breaks and investments under Whitehall scrutiny

Lisa Smith, BA (Hons), CeFA

The Treasury is scrutinising how the money raised for Seed Enterprise Investment Scheme is being spent, according to a leading civil servant.

Donald Stark, head of investment tax at the Treasury says the government is determined to stamp out capital protection strategies to ensure any SEIS capital was directed at companies targeting growth.

The review follows a shake-up of SEIS permissible investments last year following the Patient Capital Review – and he did not rule out another overhaul of investment rules in the future.

Stark was speaking at the Association of Investment Companies VCT conference.

“The government is determined to make sure this country continues to be the best place for people to build up an idea,” he said.

Change of focus

“New and innovative companies and technologies are vital to our country’s long-term financial health. These companies improve competition and in time will provide new jobs.

“We want to make clear that tax advantage money should be focussed on areas where capital issues are severest.

“We are reviewing, with interest, whether the types of investments being made in 2018 and beyond are different from those that have been done in the past.”

Under the current rules, companies must show they raised funds through SEIS to grow a business over the long-term and that the investor risks a loss of capital. Companies that cannot prove these points could lose SEIS status.

Rachel Beagles, chairman of the Association of Investment Companies, said managers needed to be aware they could face further changes.

SEIS tax advantages

“Preserving VCT tax relief is positive but the Patient Capital Review should not be viewed as a permanent settlement,” she said.

“We need to continue to demonstrate a net benefit to the taxpayer in continuing to deliver capital to growth areas.”

SEIS status allows investors to claim generous tax breaks, including:

  • A 50% income tax refund capped at £50,000 for a maximum annual SEIS investment of £100,000
  • No capital gains tax on any gains in the value of SEIS shares held for three years
  • Loss relief if the start-up fails

Similar tax breaks also apply to companies raising funds through the Enterprise Investment Scheme and the Venture Capital Trust.

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