Seed Enterprise Investment Scheme

Seed Enterprise Investment Scheme

The Seed Enterprise Investment Scheme was introduced in 1997 by HMRC. Its aim is to encourage private investors to invest in start-up companies in the UK to provide the essential seed capital needed to get a business off the ground.

Due to the inherent risk involved in investing in this type of company, HMRC offers investors a 50% tax relief against income tax on the value of the investment they make – essentially sharing the risk with the investor.

If the company were to fail and the invested funds lost there is further loss relief from future income tax available on the net investment at the investors highest marginal rate.

Example:
Investment
£20,000
Tax relief
£10,000
Net Investment
£10,000
Loss relief (40%)
£4,000
Total risk capital
£6,000

As well as 50% income tax relief. It is possible to also claim capital gains tax relief on the same investment. If you have made a capital gain in that year you can opt to re-invest the gain into a SEIS qualifying company and claim additional tax relief (based on 50% of the value of the investment).

The aim is for the company to grow and either purchase back the shares from investors in the future at a premium, or the company may be sold and a capital gain made. Under SEIS rules all investment returns are tax-free when treated as a capital gain. However, any dividends paid will be treated as income in the usual way and taxed accordingly.

As the company must be unlisted (not including AIM) the shares the investor owns should qualify for business property allowance (BPR) after two years. This means they can be left inheritance tax free to a beneficiary and will not form part of the taxable estate in the event of death.

This unique type of investment not only offers the highest income tax relief in the UK when you make an investment, but also offers tax-free investment growth when the investment is sold in the future. This makes it one of the only UK investments to offer tax relief at both ends of the investment process.

Net Investment Risk
  • Introduced in 2012 by HMRC
  • 50% income tax relief
  • Capital gains tax relief
  • Loss relief at highest marginal rate
  • Tax-free investment growth
  • Inheritance tax free after two years (BPR qualifying)

“Over £1.5 Billion a year is invested in tax efficient investments”

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