When can SEIS relief be claimed? What are the conditions for and benefits of SEIS relief?
Subscribers see SEIS: Seed Enterprise Investment Scheme (subscribers)
This is a freeview 'At a glance' guide to the Seed Enterprise Investment Scheme (SEIS).
At a glance
The Seed Enterprise Investment Scheme (SEIS) provides tax incentives in the form of a variety of Income Tax and Capital Gains Tax (CGT) reliefs to investors who invest in small start-up, unquoted trading companies.
Income Tax relief
- Individuals who subscribe for shares in a SEIS qualifying company will receive tax relief of 50% on the cost of the shares, which is offset against the individual's Income Tax liability for the year in which the investment is made.
- The maximum investment an individual can make is £200,000 (£100.000 fto 5 April 2023)
- SEIS relief applies to investment in companies, and not in unincorporated businesses or Limited Liability Partnerships (LLPs).
- Companies can raise up to £250,000 (£150.000 to 5 April 2023) of SEIS investment.
- Companies have a gross asset limit of £350,000 (£200,000 to 5 April 2023).
- The trading time limit is three years (two to 5 April 2023).
SEIS Reinvestment relief and CGT relief
- As an added incentive to encourage more people to back ‘riskier’ companies, a CGT break is also offered for investments made into the scheme:
- Capital gains may be reinvested in SEIS companies to obtain reinvestment relief, which, from 2013-14, exempts up to 50% of the earlier chargeable gain from CGT.
- In 2012-13 reinvestment relief was unrestricted.
- Disposals of SEIS shares will be exempt from CGT after a three-year qualifying period.
- If the SEIS investment makes a loss, an individual will also be able to offset the capital loss against income.
- If SEIS shares are disposed of at a loss at any time, the loss, after any Income Tax relief has been taken into account, can be Offset against income for that year and the previous year instead of being offset against capital gains.
- A loss can be claimed on the disposal of SEIS shares even if the Income Tax relief has not been withdrawn. The loss is reduced by the amount of any Income Tax relief which remains attributable to the shares sold.
SEIS Top FAQs
- How much relief can you claim?
- What if you have no other income?
- The rules for earlier years: what if someone had made a capital gain and invested it in SEIS that year?
- Loss relief after three years: what if someone makes losses on their investment?
- Loss relief: what if someone's investment fails before the qualifying investment period ends?
- Losses: what can a taxpayer do with a capital loss?
- Disqualification: how can you avoid disqualification?
- Formalities: do you have a SEIS checklist?
- Do loans from potential investors affect SEIS claims?
- Will an SME R&D claim mean the company cannot qualify for SEIS?
- What happens to SEIS claims if the company ceases to trade?
- What happens if I have submitted an EIS compliance statement instead of an SEIS statement?
- If an investor wants to claim Income Tax relief and CGT reinvestment relief do they both have to be claimed in the same tax year?
- What happens when I dispose of SEIS shares?
Overview of the SEIS
The SEIS is modelled largely on the existing Enterprise Investment Scheme (EIS), with the following key differences:
- There is no restriction on directors investing under the scheme, providing they meet the other investor tests.
- The amount that a company can raise under the SEIS is limited to £250,000 in total (£150,000 up to 5 April 2023).
- Investors will not be able to claim relief until the company has spent 70% of the money raised.
- The company must use SEIS investment money within three years.
- The company may have subsidiaries.
- The eligibility is by reference to the age of the trade rather than the company.
- SEIS relief is open to past employees.
- From 6 April 2015, the requirement that 70% of SEIS money has to be spent before EIS or Venture Capital Trust (VCT) shares or securities can be issued was abolished.
An investor is a qualifying investor if:
- They are not connected to the company (see below).
- There are no linked loans to them: broadly a loan which, but for the investment, would not have been made, or would have been made on different terms.
- They subscribe to the shares for genuine commercial reasons and not as part of a tax avoidance scheme or arrangement.
Restriction for connected individuals
- Between the period beginning with the issue of the shares and the later of three years after the investment was made, an individual and/or their associates cannot be ‘connected’ with the qualifying SEIS company, they cannot be a company employee. A director is not treated as an employee for SEIS. See Case study on directors and employees for SEIS purposes.
- Between the period beginning with the company incorporation to the third anniversary of the date of the share issue, they cannot directly or indirectly possess or be entitled to acquire more than 30% of the company's or any subsidiaries:
- Ordinary share capital, or
- Issued share capital, or
- Voting rights, or
- Rights to assets on a winding-up.
- The rights of an individual's associates are attributed to the individual for the 30% test.
A SEIS company must:
- Have fewer than 25 employees.
- Have gross assets of less than £350,000 (£200,000f up to 5 April 2023).
- Have been trading for less than three years (two years up to 5 April 2023).
- Not have raised any money from EIS or VCT investors
- Carry on a genuine new trade.
- Have a Permanent establishment in the UK.
- Not use the funds raised to acquire shares in another company or, from 18 November 2015, the trade and assets of another entity.
The ‘risk to capital’ condition
This measure is intended to exclude artificial investments that have no real prospect of risk from benefitting from the tax advantages of the Venture Capital (VC) reliefs. It is not designed to affect genuinely entrepreneurial start-ups.
It applies from 15 March 2018 and provides that it must be reasonable to conclude (when the shares are issued):
- The issuing company aims to grow and develop its trade in the long term.
- There is a 'significant risk' that lost capital will exceed net investment return, including Income Tax relief.
- These are to be considered in relation to all circumstances. A list is included in the legislation, but this is not intended to be exhaustive.
- 'Significant risk' is not defined and will be a question of fact on a case-by-case basis.
- Where there are one or more indicators that capital is not being risked this will not automatically mean that the condition is not met. All factors need to be considered together in respect of the individual case.
- Despite the March 2018 start date, HMRC have refused to provide advance assurance where this condition is not met since 4 December 2017.
- See Risk to Capital: EIS, SEIS and VCTs
Useful guides on this topic
SEIS: Seed Enterprise Investment Scheme (subscribers)
When can SEIS relief be claimed? What are the conditions for SEIS relief? What are the benefits of SEIS relief?
EIS: Enterprise Investment Scheme (subscriber guide)
When can EIS relief be claimed? What are the conditions for EIS relief? What are the benefits of EIS relief?
SEIS & EIS: Qualifying trades & activities
What is a qualifying trade or activity for Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) relief? Which trades do not qualify for relief? What are excluded activities?
SEIS & EIS: Share issue checklist
Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) share issue checklist: Issue and allotment of shares.