Seed Enterprise Investment Scheme (SEIS)
- the scheme offers up-front income tax relief of 50% for subscriptions of shares by investors of up to £100,000 (which can include directors). It should be noted that a claim for relief under SEIS may not be made until at least 70% of the money raised by the issue has been spent by the issuing company for the purposes of the qualifying business activity for which it was raised;
- there is no CGT payable on the disposal of SEIS shares held for more than three years.
- Loss relief is available on the disposal of SEIS shares which can be set off against income in the tax year of the loss.
- the ability to defer the capital gains tax liability (or part of it) payable on the disposal of other chargeable assets by reinvesting the relevant gain or part of it into an EIS eligible company (CGT deferral relief). The capital gains tax on the original gain becomes payable when the EIS shares are disposed of, or there is another chargeable event. This is a cash flow advantage and effectively represents an interest-free loan from the Government in respect of the tax due.
- inheritance tax relief if the SEIS shares are held for at least two years.
Requirements and limits
- in order to qualify for the SEIS, a company must be undertaking, or planning to undertake, a new business which has fewer than 25 full-time employees and gross assets of less than £200,000 at the time of the SEIS investment;
- qualifying companies will be able to raise a total of up to £150,000 under the scheme, and funds raised must be used within three years. Once 70% of funds have been utilised, the company may raise funds under the EIS or from VCTs;
- the individual investor limit for SEIS will be £100,000 per tax year and relief can be carried back to the preceding tax year.
- There are lots of conditions that need to be satisfied by the investor and company , the main ones being that he/she must subscribe cash for newly issued ordinary shares with no preferential rights, and
- The business must not be more than 2 years old.
- Together with associates, the investor must not own more than 30% of the equity or voting power in the relevant company.
- SEIS relief is potentially available for owner-managers, as well as outside investors but not employees.
- The company issuing the SEIS shares must be unquoted and must be UK tax resident or have a “permanent establishment” (essentially a fixed place of business) in the UK.
- In addition, the company must not be under the control of another company and is restricted as to how it holds shares in subsidiaries.
Companies with the following trades are excluded from SEIS relief:
- dealing in land, in commodities or futures in shares, securities or other financial instruments
- dealing in goods, other than in an ordinary trade of retail or wholesale distribution
- financial activities such as banking, insurance, money-lending, debt-factoring, hire-purchase financing or any other financial activities
- leasing or letting assets on hire, except in the case of certain ship-chartering activities
- receiving royalties or licence fees (though if these arise from the exploitation of an intangible asset which the company itself has created, that is not an excluded activity)
- providing legal or accountancy services
- property development
- farming or market gardening
- holding, managing or occupying woodlands, any other forestry activities or timber production
- coal production
- steel production
- operating or managing hotels or comparable establishments or managing property used as an hotel or comparable establishment
- operating or managing nursing homes or residential care homes, or managing property used as a nursing home or residential care home
- generating or exporting electricity which will attract a Feed-in Tariff, unless generated by hydro power or anaerobic digestion, or unless carried on by a community interest company, a co-operative society, a community benefit society or a Northern Irish industrial and provident society
- providing services to another person where that person’s trade consists, to a substantial extent, of excluded activities, and the person controlling that trade also controls the company providing the services