SEED ENTERPRISE INVESTMENT SCHEME
The Seed Enterprise Investment Scheme is designed to help smaller, high risk companies raise finance by offering tax relief on new shares in those companies that qualify. It offers investors a very tax-efficient way to invest in smaller companies.
50% income Tax Relief – Income tax relief at a rate of 50% is available to investors in a Seed EIS. Where an investment of e.g. £10,000 is made then a taxpayer may deduct £5,000 from any Income Tax liability in the year of investment or the preceding year if appropriate. There is no minimum EIS investment.
EIS Maximum – A maximum of £100,000.00 per year may be invested across all an individual investors EIS investments.
Married Couples – Seed EIS allowances are allocated individually; therefore, a married couple can invest up to a maximum of £200,000.00 each tax year and be eligible for income tax relief.
Qualifying Period – A Seed EIS investment must be held and remain Seed EIS qualifying for 3 years from the date of issue to retain the tax concessions.
Capital Gains Tax Exemption – After 3 years any gains are CGT free as long as Income Tax relief was claimed at the outset.
Loss Relief – If the shares are disposed of at a loss, then loss relief is also available. Any loss, less the Income Tax relief claimed at outset, can be set against any Income Tax liability in the year of disposal or the preceding year if appropriate.
CGT Deferral – Payment of CGT on previous investments can be deferred when the gains realised are reinvested into a Seed EIS qualifying investment. The Seed EIS investment must be made one year before or three years after the gain arose.
Carry Back – The “Carry Back” facility allows all or part of the cost of the Seed EIS investment acquired in one tax year to be treated as if the investment had been made in the preceding year. Tax relief is then given against the Income Tax liability of that preceding year rather than against the current tax year of the Seed EIS investment. The “Carry Back” is subject to the limit of Seed EIS relief for each year.
Maximum Company Investment – If an individual or their direct relatives hold shares in a company that represent in total 30% or more of the issued share capital, they become a “Connected Individual” and Seed EIS is not available. Direct relatives include spouse, children, grandchildren, parents and grandparents. However, they exclude siblings.
Connected Individuals – Individuals connected with a Company are not eligible for Seed EIS reliefs on any investment in that company. These include employees but not “Business Angels”. For most Income Tax payers the risks of investing in a Seed EIS investment are generally mitigated by the available tax reliefs against Income Tax. However, an investor may suffer the opportunity costs of missing out on positive returns on an alternative investment.
For further Seed EIS information please refer to the HMRC website at:
The above is a summary of the benefits and conditions of a Seed EIS investment and potential investors are recommended to seek advice from their financial adviser.
SEED EIS Promoters & Examples
There are a number of authorised SEED EIS promoters and some of the more notable ones that we work with are listed below:
Many of these typically focus on specific types of companies and investments. This will reflect on their respective areas of industry expertise.
Some SEED EIS promoters also offer a portfolio or “Fund” of qualifying investments to give broader diversification and to reduce investment risk across the whole portfolio.
SEED EIS Company Conditions
- Investors cannot control the company receiving their capital, and must not hold more than a 30% stake in the company in which they invest.
- The company can raise no more than £150,000.00 in total via SEED EIS investment
- The company must not have any subsidiaries that are not at least 51% owned.
- The investee company must have Fewer than 25 full-time employees.