Seed Enterprise Investment Scheme (SEIS) & Enterprise Investment Scheme (EIS)

Seed Enterprise Investment Scheme & Enterprise Investment SchemeIntroduction to SEIS

The Seed Enterprise Investment Scheme, also known as SEIS, offers great tax efficient benefits to individuals while also encouraging investing in small and early stage start-up businesses in the UK. The SEIS was designed to boost economic growth in the UK by promoting new enterprise and entrepreneurship.

Important Points about SEIS

  • SEIS investors can input £100,000 in a single tax year, which can be spread over a number of companies. Any one company can raise no more than £150,000 in total via SEIS investment.
  • Investors cannot control the company receiving their capital and cannot have more than a 30% stake in the company in which they invest.
  • Investors can receive up to 50% tax relief in the tax year the investment is made, regardless of their marginal rate of income tax.
  • The business company must be a UK company and have a permanent establishment in the UK.
  • In the 2014-15 tax year, tax payers can roll a chargeable gain on the disposal of assets in the tax year in to shares qualifying for SEIS income tax relief, with a full capital gains tax exemption.
  • The company must have fewer than 25 employees. If the company is the parent company of a group, that figure applies to the whole group.
  • The company’s trade must be no more than two years old.
  • The company must have assets of less than £200,000.
  • The company has to trade in an approved sector – generally not in finance or investment, for example, a property company cannot raise capital as SEIS.

Introduction to EIS

The Enterprise Investment Scheme (EIS) is a series of UK tax reliefs designed to encourage investments in small companies carrying on a qualifying trade in the United Kingdom. This scheme follows on from the SEIS (when a business is looking to raise further capital once the seed investment has been utilized already). Investment in companies that are not listed on a stock exchange often carries a high risk. The tax relief is intended to offer some compensation for that risk. The EIS offers both income tax and capital gains tax reliefs to investors who subscribe for shares in qualifying companies.

Important Points about EIS

  • An investor with no more than a 30% interest in the company can reduce his/her income tax liability by an amount equal to 30% of the share subscription. The maximum subscription per investor is currently £1,000,000 per annum, yielding a potential reduction in tax liability of £300,000 per annum (assuming the investor has sufficient income tax liability).
  • Investors cannot control the company receiving their capital and cannot have more than a 30% stake in the company in which they invest.
  • The company must not have assets greater than £15 million.
  • Deferral of gains realised on a different asset, where disposal of that asset was less than 12 months before the EIS investment or less than 36 months after it. This relief is limited to the amount being invested into the EIS and can be claimed by investors whose interest in the company exceeds 30%. It is available to individuals and trustees. Where gains arise on the EIS investment, taper relief is available. Note that deferral of gains is no longer available by investing in VCTs.
  • No capital gains tax payable on disposal of shares after three years provided the EIS initial income tax relief was given and not withdrawn on those shares.
  • If EIS shares are disposed of at any time at a loss, such loss can be set against the investor’s capital gains or his income in the year of disposal.
  • EIS Investments are exempt from inheritance tax after two years of holding such investment subject to the Company being allowable under Business Property Relief (BPR).
  • All capital employed must be actively engaged in the company within 24 months.

Useful Links

You can find more important information about SEIS and EIS on the HM Revenues & Customs – Investment Schemes page.