Seed Enterprise Investment Scheme Information
The Seed Enterprise Investment Scheme, also known as SEIS or Seed EIS, provides an opportunity to connect investors with small early stage businesses who are looking to raise capital. What is so appealing to investors with this new scheme is the very attractive and significant tax relief and investment protection that it delivers.
The government has introduced this scheme so that investors and businesses can give each other a helping hand. Small businesses need investment to enable growth, and investors want to see a good return on their money. A return that comes with lots of tax advantages and risk protection is all the more welcome.
With this particular scheme, investors are attracted by the 50% tax reduction that an investment can give. This can be applied to income tax over one or two years. Capital gains relief is also given on investments that grow into gains, any sales from shares will be exempt from tax. Any reinvestment of gains will be exempt.
There are a number of qualifying factors to take into account, but these are not hurdles that offer any real challenge. Investors must not be employed by the company (directors who do not have more than a 30% interest in the business are exempt from this qualifier) and new businesses must be operating within certain qualifying trades. It must also have gross assets under £200,000 and have fewer than 25 employees.
Example of SEIS Tax Relief Benefits
To give you a quick example, supposing you invest £20,000 in your friend’s internet business. You receive income tax relief of £10,000 for doing this. Now your risk is just half what it was. If the company ends up winding up, then you can offset the other £10,000 against your income tax at the same rate of tax that you pay.
So not only have you been able to help out a friend, buy you’ve been able to mitigate any risk to yourself. If the company goes well and you make back your £20,000 plus another £20,000 when you sell the shares, you will not have to pay the expected 28% tax and so will keep all of your gain.