The Seed Enterprise Investment Scheme was introduced in 2012 and is designed to help small, early-stage/start-up companies with new trades to raise equity finance by offering a range of tax reliefs to individual investors who subscribe for new shares in those companies.
It complements the existing Enterprise Investment Scheme which continues to offer tax reliefs to investors in higher-risk small to medium sized companies. SEIS is intended to recognise the particular difficulties which very early stage companies face in attracting investment, by offering tax relief at a higher rate than that offered by the existing EIS.
The income tax relief rules have been designed to mirror those of EIS as it is anticipated that companies may want to go on to use EIS after an initial investment under SEIS.
Investments are either made directly into a pre-identified single company or into an SEIS fund. SEIS funds are not technically pooled investment vehicles but rather a series of investments in individual SEIS qualifying companies which are collectively referred to as a ‘fund’. In effect the management team behind the fund provide a discretionary investment management service within the parameters of a common investment policy for all investors. SEIS qualifying companies and SEIS funds are not quoted on the Stock Exchange.
SEIS investments offer the potential for:
- tax free capital growth
- income tax relief at up to 50%
- capital gains tax reinvestment relief (investors can benefit from 50% capital gains tax relief on gains which are reinvested in SEIS eligible shares)
- for a business that has started to trade, the value of the shares may qualify for 100% business relief (BR) from inheritance tax (after a minimum two-year holding period, unless the shares are “replacement business property”)
- potential for additional income tax relief on losses
In order to maintain the tax benefits available under SEIS, an investor must hold their shares for 3 years from the date of issue and the company must continue to meet the qualifying conditions throughout this period. Failure to do so, could result in a withdrawal of the tax reliefs.
Being an equity investment, investors should be aware that returns are not guaranteed, and the original amounts invested could be lost in part or in their entirety. Given that small companies can take time to grow, and an exit may not be immediately apparent for shareholders, SEIS investments should be considered high risk and long-term investments, being at least three to five years, if not longer. Furthermore, the availability of tax benefits should not distract investors from the need to properly consider the risks versus potential returns of any given opportunity. As with any alternative investment, tax should not be the driving reason behind an individual’s reason decision to invest.
For further details of the investment risks please see the Key Risks section of this website and for further details of the tax advantages please see the Tax Treatment section of this website. Tax treatment is dependent on the circumstances of each individual and may be subject to change in the future.