What is SEIS?
The Seed Enterprise Investment Scheme (SEIS) is designed to enhance investment in the UK’s earliest stage startups.
Investors are able to invest up to £200,000 per tax-year using SEIS. This makes SEIS the most limited scheme in comparison to SEIS, EIS and VCTs in terms of the amount you can invest.
However, where SEIS lacks on the amount you are able to invest, it makes up for it with more generous tax benefits than VCTs and EIS. These include 50% Income Tax Relief and 50% Capital Gains Tax Reinvestment Relief.
This is due to the higher risk nature of the companies the Seed Enterprise Investment Scheme is designed for. The SEIS is only eligible for companies less than two years old meaning there is a higher risk of them failing than those covered by VCTs and EIS.
SEIS Tax Benefits
50% Income Tax Relief
Eligible investors in an SEIS qualifying investment may be eligible for 50% income tax relief. If you invest £10,000 in an SEIS qualifying investment you will receive £5,000 income tax relief, assuming your annual tax liability is £5,000 or more.
| Income Tax Relief | |
|---|---|
| SEIS Investment | £20,000 |
| 50% Income Tax Relief | £10,000 |
| Net Investment | £10,000 |
Capital Gains Tax Exemption
Eligible investors in an SEIS qualifying investment may pay no capital gains tax on disposal if held for 3 years or more.
Loss Relief
If shares in a company are sold for less than they are purchased for, investors may receive up to 45% Loss Relief for their loss after any income tax relief.
For example, £20,000 is invested in a company which subsequently fails meaning shares hold no value. The investor would have received £10,000 Income Tax Relief meaning their effective loss is £10,000. Assuming the investor pays the additional rate of tax at 45%, they would receive Loss Relief of 45% x £10,000 = £4,500.
After receiving Loss Relief and taking into consideration £10,000 income tax relief, the investor’s loss on the original £20,000 could be £5,500 after taking into consideration both Income Tax Relief and Loss Relief. You claim Loss Relief at your marginal tax rate, higher rate tax payers will claim loss relief at 40%.
| Company Value Doubles | Company Value Even | Company Value Zero | |
|---|---|---|---|
| SEIS Investment | £20,000 | £20,000 | £20,000 |
| 50% Income Tax Relief | -£10,000 | -£10,000 | -£10,000 |
| Net Investment | £10,000 | £10,000 | £10,000 |
| Proceeds on Sale | £40,000 | £20,000 | £0 |
| 45% Loss Relief | n/a | n/a | -£4,500 |
| Capital Gains Tax | nil | nil | n/a |
| Net Return after Tax Relief | £30,000 | £10,000 | -£5,500 |
This table is an example only. Please consult a tax professional before investing.
50% Capital Gains Reinvestment Relief
Eligible investors could reduce up to 50% of their capital gains liability incurred elsewhere when investing using SEIS.
Inheritance Tax Exemption
When shares in SEIS qualifying companies are sold after two years eligible investors could be exempt from paying inheritance tax.
SEIS Tax Benefit Comparison
| Maximum Allowance | Income Tax Relief | Tax-Free Dividends | IHT Relief | Loss Relief | CGT Relief or Deferral | |
|---|---|---|---|---|---|---|
| EIS | £2,000,000* | 30% | No | 2 Years | Yes | Deferral |
| SEIS | £200,000 | 50% | No | 2 Years | Yes | 50% Relief |
| VCT | £200,000 | 30% | Yes | No | No | No |
*EIS limit raised to £2m if investment is made in knowledge intensive companies
SEIS Tax Benefits Summary Guide
Download our SEIS Tax Benefits Summary Guide to refer back to.
This guide provides a brief summary of the main tax benefits associated with SEIS. Please visit our resources page for more comprehensive guides.
Please read the High Net Worth Individual Statement or Sophisticated Investor Statement before completing downloading this guide.
