Seed Enterprise Investment Scheme

The Seed Enterprise Investment Scheme (SEIS) was launched by the United Kingdom government on 6 April 2012 in order to encourage investors to finance startups by providing tax breaks for backing projects they may otherwise view as too risky.

The SEIS offers both income tax and capital gains tax relief to qualifying investors who subscribe for shares in qualifying companies.

There are a number of complex rules about whether investors and companies can qualify and some of the main rules are listed below. In addition, for shares to qualify, they must be issued wholly for cash and be held by the investor for more than three years. They cannot hold any preferential rights.

Those intending to raise funding under SEIS are encouraged to apply for SEIS advanced assurance by writing to the Small Companies Enterprise Centre (SCEC), which is a division of HMRC. HMRC will provide an opinion as to whether or not the company and its proposed investment structure are likely to qualify.

(The following examples are sourced from SyndicateRoom and assume a tax rate of 45% and capital gains at 28%.)

Example 1: The company fails

If someone invests £1000 in an SEIS eligible start-up, this is what they can expect to receive in Tax relief and Total Returns:

Example 2: The company breaks even

If someone invests £1000 in an SEIS eligible start-up, this is what they can expect to receive in Tax relief and Total Returns:

Example 3: The company returns a profit

If a person invests £1000 in an SEIS eligible start-up, this is what they can expect to receive in Tax relief and Total Returns if the company sells out for double the value when they invested:

Further, and for all examples, investors can claim exemption on up to half of capital gains owed in a tax year (up to the SEIS limit of £100,000) given that this amount is invested into SEIS eligible companies.

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