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Seed Enterprise Investment Scheme (SEIS) Explained

By Adam Pritchard

As the country lurches back into action and lockdown eases we take a look at one of the most generous tax reliefs available to investors and business owners aimed at kickstarting the economy and giving new businesses the best chance to life.

We take a look at the advantages, criteria and practicalities of the Seed Enterprise Investment Scheme (SEIS).

 

What is SEIS?

The Seed Enterprise Investment Scheme (SEIS) is a tax scheme created by the UK Government.  The scheme allows investors to offset up to 50% of their investment against income tax in the current and prior year as well as offering significant capital gains tax reductions and other benefits.

 

What are the specific advantages to investors?

SEIS: Income tax relief

A qualifying investor can claim back up to 50% of their investment back in income tax relief. 

For example if you invest £10,000, you could reclaim £5,000 in income tax relief (as long as you have a large enough income tax liability). 

This means that your net capital at risk is only £5,000.  Your investment has already returned at 50%.

 

SEIS: Capital Gains tax relief - Disposal relief

Depending on your personal circumstances and SEIS shares held for a minimum of three years will be capital gains tax free on disposal. 

For example if you invest £10,000 in shares that in three years are worth £100,000 you will pay no capital gains tax on the £90,000 gain.

 

SEIS: Capital Gains tax relief - Reinvestment Relief

If you choose to reinvest gains made on other non-SEIS investments into a SEIS qualifying company, you will receive 50% capital gains tax relief on the original investments.

For example if you make a capital gain of £10,000 and you reinvest the whole £10,000 into a SEIS company, 50% of that £10,000 will be exempt from capital gains tax.

 

SEIS: Loss relief

If the business performs poorly and you lose money on your investment, you may claim loss relief. The loss relief you can claim is the equivalent of the highest rate of tax you pay.  So if you pay 45% income tax you can reclaim up to 45% of your net loss in income tax relief.

For example if you invest £10,000 and your shares end up being worth nothing, in the first instance you can claim income tax relief at 50%  (£10,000 x 50% = £5,000), then of the remaining £5,000 you can claim 45% income tax relief reducing your overall loss to just £2,750.

 

SEIS: Inheritance tax relief

After holding the shares for two years there will be no inheritance to pay.

 

How do Investors qualify?

  • Investors can only invest £100,000 in any number of companies per year
  • You must hold shares for a minimum of three years. If you dispose of the shares inside the three year window HMRC can claw back the tax relief
  • You must be a UK taxpayer
  • You cannot carry forward the tax relief

 

Three examples of SEIS at work

1.Your investment triples in value

Your initial Investment

 

£50,000

Income tax relief up to 50%

 

£25,000

Your Investment return after three years

 

£150,000

Capital Gains tax in disposal of shares

 

£0.00

Total Returns

 

£175,000

 

2. Your investment stays the same

Your initial Investment

 

£50,000

Income tax relief up to 50%

 

£25,000

Your Investment return after three years

 

£50,000

Capital Gains tax in disposal of shares

 

£0.00

Total Returns

 

£75,000

 

3. Your investment decreases in value

Your initial Investment

 

£50,000

Income tax relief up to 50%

 

£25,000

Your Investment return after three years

 

£0.00

Net capital at risk

 

£25,000

Loss relief at highest rate of tax 45%

 

£11,250

Total returns

 

£26,250

Net Loss

 

£13,750

 

As always, if you are looking for some advise or help regarding SEIS please feel free to get in touch. Our team is more than happy to talk to you. 

 

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