Risk warning: SEIS and EIS tax reliefs depend on individual circumstances and may change in the future. In addition, the availability of tax relief is reliant upon the company you invest in maintaining its qualifying status.
What are SEIS and EIS?
In an effort to encourage the public to invest in early-stage companies, the government launched two schemes designed to provide attractive tax breaks for each investment made - providing both new and experienced investors with a real incentive to use their money to help a small business fund their next phase of growth.
Known as the Seed Enterprise Investment Scheme (often referred to as Seed EIS or simply SEIS) and the Enterprise Investment Scheme (EIS), these two separate but related schemes share a range of benefits for investor and investee alike.
What’s in it for business owners?
For qualifying businesses, the chance to raise funds from a wide pool of potential investors - funds which can be used to facilitate crucial business development - is an understandably exciting prospect. And thanks to the tax relief that comes with these types of investment, the idea of investing in an eligible enterprise is made all the more appealing.
As well as offering all the benefits of traditional equity crowdfunding, the SEIS and EIS schemes give business owners an opportunity to work as closely with their investors as both parties would like - creating the potential for gratifying long-term relationships.
What’s in it for investors?
Investing in a qualifying company through either of these schemes comes with a number of exciting benefits. On top of the clear advantages associated with tax relief on EIS and SEIS investments, this alternative investment route also gives anyone with an interest in saving on their tax bill the chance to use their money to support British-based business. By taking this leap of faith, investors could enjoy a satisfying return on their financial contribution.
For business owners looking to extract profit from their company, investing in an eligible enterprise through EIS or SEIS provides a legal and tax-efficient solution to this particular problem. Meanwhile, for PAYE employees for whom tax is automatically deducted, EIS or SEIS tax relief can offer a creative method for minimising tax.
Summary of SEIS tax reliefs
SEIS offers a number of tax reliefs to investors, ranging from automatic reductionsincome tax relief to loss relief and capital gains avoidance relief. Some of these are dependent on your tax bracket, so you’ll need to be aware of that.
A brief history of SEIS
The Seed Enterprise Investment Scheme was introduced in April 2012 by the HMRC to help small, early-stage companies raise funds through individual investors - providing generous SEIS tax relief s to investors who take risks on these very new entrepreneurial ventures. It builds on the success of the Enterprise Investment Scheme (EIS) - which was introduced in 1994 in an aim to raise funds for small, unquoted companies, by providing similar (though not as extensive) tax relief to investors.
A few quick investor rules about SEIS before we get into the available tax reliefs:
- Investors may put up to £100,000 per year into SEIS investments
- Investors may NOT control more than a 30% stake in any company invested in through SEIS
Individual tax relief of up to 50% of the amount invested
Maximum investment of £100,000 per tax year
Can be split over previous and current tax years
Exempt from CGT if held for 3 years then sold
CGT exemption (write-off) equal to 50% of your SEIS investment in the same tax year
Normally no IHT payable on SEIS shares if held for a minimum of 2 years
SEIS share value is generally not part of your estate after 2 years
If you’re looking to invest more than £100,000 a year in qualifying companies, you may wish to explore the idea of additional investments under the Enterprise Investment Scheme.
SEIS rules are significantly more stringent than those surrounding other investment schemes - so we’d strongly recommend seeking out advice from a tax or financial professional before deciding to incorporate an SEIS investment into your wider portfolio.
Summary of EIS tax reliefs
EIS reliefs include automatic reductions income tax relief, loss relief and capital gains tax deferral. Again, your tax bracket will influence which reliefs you’ll be eligible for, so make sure you have this information before pursuing a relevant investment opportunity.
A brief history of EIS
The Enterprise Investment Scheme was introduced in 1994 by HMRC, with the purpose of recognising that unquoted trading companies can often face considerable difficulties in realising relatively small amounts of share capital. Intended to provide a targeted solution to these financial struggles faced by smaller businesses and make it easier for these enterprises to find funding, the EIS scheme was developed.
A few quick investor rules before getting into EIS reliefs:
- Investors may put up to £1,000,000 per year into EIS investments
- Investors may NOT control more than a 30% stake in any company invested in through EIS
Again, if you’re considering moving forward with this type of investment, it’s worth remembering that there are many tight EIS rules and regulations to be aware of. We’d always advise consulting with a tax or financial professional prior to making any kind of commitment.