The Seed Enterprise Investment Scheme (“SEIS“) was established by the Finance Act 2012 as a Government initiative to encourage investors to put money into shares in unquoted small companies, and to assist such companies in fund raising so that they could start trading. The SEIS rules are contained in Part 5A Income Tax Act 2007.
The SEIS offers significant UK tax benefits to “qualifying investors” who have subscribed for “relevant shares” in a “qualifying company”. The money invested must be applied within a specified time limit for the purposes of a “qualifying business activity”. All of these terms are explained below.
The rules apply to shares issued on or after 6th April 2012. Generally, conditions must be met from the share issue for three years but some conditions need to be met from incorporation of the company. Whilst this note seeks to highlight the times during which they need to be met in respect of certain conditions, we have for brevity not done so for all conditions. Care should be taken to ensure that all conditions are met for the relevant period and the position monitored closely by the issuing company for all conditions.
Tax benefits available
Both income and capital reliefs are available, as follows:
- Income tax relief of 50% of the cost of the share subscription up to a maximum investment of £100,000 per annum given as a reduction in income tax liability for the tax year in which the investment was made; the relief will be clawed back unless the relevant shares are held for at least three years from their date of issue (the “relevant period“).
- Capital gains exemption on disposal of shares for which income tax relief is given and not withdrawn, provided that the shares have been held for the relevant period (if a disposal results in a loss, the loss is available regardless of when the shares are sold)
- Capital gains reinvestment relief to exempt chargeable gains arising on the disposal of an asset from capital gains tax if all or part of the gain is reinvested in the same tax year in shares which qualify for SEIS relief. For the 2012/13 tax year reinvested gains of up to £100,000 may be exempted, however for subsequent tax years this has been reduced to 50% of reinvested gains (up to a maximum relief of £50,000).
- Loss relief is given for any allowable losses arising on disposal of the share (less any income tax relief already claimed) against either income or capital gains. This means that for an additional rate income taxpayer the total exposure on an SEIS-qualifying investment may only be 27.5%.
If you want to find out more about SEIS and whether you qualify look for the full guidance note in Solutions.