SEIS Use It Or Lose It Tax Relief For Expats

With only a few weeks to go to the end of the financial year, it’s time for expat investors to think about the use it or lose it tax saving opportunities offered by the Seed Enterprise Investment Scheme (SEIS).

SEIS income tax relief is open to investors who have a tax liability in Britain and take an equity stake in any company that qualifies to join the scheme.

The relief is open to residents and expats – the key is a UK income tax liability not UK tax residence.

Non-resident buy to let or commercial property landlords could find SEIS an ideal way to minimise the income tax paid on rental profits in the UK, for instance.

Another important rule also applies – the tax relief can be clawed back if the shares are not held by the investor for at least three years and the company must meet SEIS qualification rules throughout that time.

How SEIS tax relief works

The tax relief is worth 50% of the money invested in a SEIS company shares up to a maximum of £100,000 regardless of the marginal rate of tax paid by the investor.

HM Revenue & Customs (HMRC) gives two examples in the online guidance to SEIS –

  • Jenny holds £20,000 of shares in a SEIS qualifying company. She has an income tax liability for the year of £20,000. This is reduced to £5,000 with the 50% relief on her investment.
  • James also invests £20,000 in a SEIS qualifying company and has an income tax bill of £7,500. Although he gains a £10,000 tax reduction, he writes down his income tax to zero but loses the additional relief as he has no other income tax to pay.

Investors can take advantage of a ‘carry back’ income tax reduction which allows the cost of shares bought in one year to be offset against tax due in the previous year.

Carry back

SEIS rules apply the relief appropriate to the earlier tax year when calculating the tax saving.

As SEIS started in April 2012, carry back can only go back that far.

SEIS also offers capital gains tax reliefs – deferring the tax on disposals made to raise SEIS investment cash and exempting the growth in value of the equity stake in the company.

Expats could not benefit from this relief as until April 2015, as they are currently exempt from capital gains tax. From April 2015, non-residents do become liable for CGT on residential property disposals in the UK but it is not yet clear whether they will be allowed to benefit from SEIS CGT reliefs on any disposals of UK property.

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