Seed Enterprise Investment Scheme (SEIS)
What is SEIS?
SEIS offers lucrative tax reliefs to investors in early stage start up businesses. The relief available is limited and there are a number requirements that must be met by the company and investor throughout the period of investment.
Principle benefits of SEIS
- Firstly, the scheme offers a 50% up-front income tax relief, for investments of up to £100,000.
- There is no capital gains tax payable on the disposal of SEIS shares which are held for more than three years.
- Loss relief is available on the disposal of SEIS shares if the company fails.
- Capital gains tax due on the disposal of other assets can be deferred by reinvesting the relevant gain into a qualifying company.
- Finally, inheritance tax relief is available if the SEIS shares are held for at least two years.
Requirements and limits to qualify for SEIS
- In order to qualify for SEIS, the company must be undertaking, or planning to undertake, a new business.
- It must have fewer than 25 full-time employees and gross assets of less than £200,000 at the time of the investment.
- Qualifying companies can raise a total of up to £150,000 under the scheme.
- Once 70% of funds have been utilised, the company can raise funds under the EIS or from VCTs
- Funds raised must be used within three years within the qualifying trade.
- An individual investor can claim relief for investments of up to £100,000 each tax year.
- There are lots of conditions that need to be satisfied by the investor and company, the main ones being;
- Firstly, the investor must subscribe cash for newly issued ordinary shares with no preferential rights.
- The shares must be fully paid up on subscription
- The business must not be more than 2 years old.
- The investor must not own more than 30% of the equity or voting power in the relevant company.
- The company issuing the SEIS shares must be unquoted and must be UK tax resident or have a fixed place of business in the UK.
- Finally, the company must not be under the control of another company.
In short, SEIS relief is potentially available for owner-managers, as well as outside investors but not employees. There are other tax efficient ways to provide shares to employees please click here to read more.
There are a number of trades that are excluded from SEIS relief, these can be found here.
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