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SEIS Investments, Tax Relief and Crowdfunding Information

Seed stage enterprises can often find it difficult to raise finance as many see these as high risk investments. In order to aid these types of companies and stimulate investment, the government has created the Seed Enterprise Investment Scheme (SEIS) which offers very generous tax relief for investors who back such companies.

The following video from School for Startups does a great job of explaining the basics of SEIS for investors.

 

 

The scheme is also summarised below.

Information which is presented here is only intended to be used as an overview; if you are looking for more information on SEIS then it can be found on the Government website.  Eligibility for potential SEIS investors depend on your circumstances and the investee company. Please consult your tax advisor should you have any questions about your eligibility.

You can view a list of InvestingZone's of SEIS investments here.

WHAT TAX RELIEF COULD INVESTORS CLAIM?

Income Tax Relief

The offer
  • Investors are able to reclaim 50% of the cost of their investments against their income tax liability for the tax year in which the investments were made.
  • If the investor's shares are later disposed of at a loss, that loss (minus any income tax relief already claimed) can be offset against the investor’s income tax liability in the year of disposal or the previous year (rather than having to be offset against capital gains which is normally the case).
How much capital can be invested under the scheme?
  • Up to £100,000 in each tax year.
Are there any constraints?
  • The investor must hold the shares for at least 3 years, otherwise the relief will be withdrawn (at least in part).

Capital Gains Tax Relief

What relief is available when I invest?
  • If gains on other assets are being used to fund an investment then those gains could be exempt from capital gains tax.
What happens when I sell my shares?
  • If investors' shares have met the conditions for the above income tax reliefs (and the relief hasn't been withdraw) then any gains on dispoal are exempt from capital gains tax.

ARE MY SHARES AN ELIGIBLE INVESTMENT?

Criteria which the shares must satisfy
  • To be fully paid in cash at the time of issue.
  • Must be full-risk ordinary shares with no rights to redemption and no preference in the event of a winding up.
  • May have limited preferential rights to a fixed, non-discretionary, non-cumulative dividend.
  • Must be no arrangements to protect the investor from the normal risks of investment and no arrangements for the shares to be sold in the future.
  • Must be no reciprocal arrangements for purchase.
  • Must be no loan made in connection with the purchase of the shares.
How the funds raised must be used
  • Must all be spent on a qualifying activity within 3 years of the share issue.
  • Qualifying activity means either carrying on a qualifying trade, preparing to carry on a qualifying trade or carrying out R&D which will lead to or benefit a qualifying trade.
  • To be eligible for relief, 70% of the money raised must be spent prior to making the claim.

IS THE COMPANY ELIGIBLE?

Qualifying trade
  • HMRC requires that the company must have had no previous trade and that the trade is less than 2 years old.
  • Certain activities do not qualify (eg property development, banking, providing accountancy services).
Limit to what a company can raised under the scheme
  • £150,000
Conditions which must be met by the company  continuously from incorporation
  • Must not be controlled by another company.
    Must not be part of a partnership.
  • May have subsidiaries but must own  more than 50% and be in control of those subsidiaries.
Conditions which the company must meet when the investment is made
  • No more than 25 employees.
  • Maximum gross assets of £220,000 immediately prior to investment.
  • No money previously raised under EIS.
Conditions which must be met by the company continuously from the date of investment
  • Must be resident in the UK or have a permanent establishment in the UK.
  • Must exist wholly for the purpose of carrying out a qualified trade.

AM I AN ELIGIBLE INVESTOR?

What is an eligible investor?
  • Must not hold more than 30% of the share capital or voting rights at any time from incorporation to 3 years after investment.
  • Must not be an employee of the company from the date the relevant shares are purchased to the third anniversary of that date (note – does not apply to directors of the company).