Tax Incentives for the Investor

Seed Enterprise Investment Scheme (SEIS)

SEIS is designed to help small companies to raise finance when in the early stage of starting up. SEIS offers a range of tax reliefs to individual investors who purchase new shares in those companies.

The SEIS exists alongside the existing Enterprise Investment Scheme (EIS), which continues to offer tax reliefs to investors in higher-risk small companies.

SEIS offers a higher rate of tax relief than that offered by EIS, as SEIS recognises the particular difficulties which very early stage companies face in attracting investment.

How does the income tax relief work?

Income tax relief is available at a rate of 50% on new, fully paid up shares subscribed for in cash up to the annual investment limit. The maximum annual investment limit is £100,000, resulting in a maximum income tax saving of £50,000 (£100,000 at 50%). There is no minimum investment limit.

However, dividends received on SEIS shares are subject to income tax.

How does the capital gains tax relief work?

Where an investor disposes of an asset which would give rise to a chargeable gain, and reinvests all or part of the gain in shares which qualify for SEIS income tax relief, 50% of the gain reinvested will be exempt from capital gains tax.

Capital gains tax exemption

On the disposal of the SEIS shares, after the end of the three-year qualifying period, any capital gain is exempt from tax, providing income tax relief has not been withdrawn.

Enterprise Investment Scheme (EIS)

EIS is designed to help smaller higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who subscribe for new shares in those companies.

The tax relief consists of income tax relief as well as capital gains tax relief for the investor, provided that the relevant conditions are met by both the company invested in and the investor themselves.

How does the income tax relief work?

Income tax relief is available at a rate of 30% on new, ordinary, fully paid up shares subscribed for in cash up to the annual investment limit.

The annual investment limit is currently £1,000,000, resulting in a maximum income tax saving of £300,000 (£1,000,000 at 30%). There is no minimum investment limit.

However, dividends received on EIS shares are subject to income tax.

How does the capital gains tax deferral relief work?

Where an investor has realised a capital gain on the disposal of any assets, it is possible to defer that capital gain by subscribing for shares in an EIS company.

For the relief to apply, the investment in the EIS company will need to be made within three years after the relevant disposal, or up to one year before.

Capital gains tax exemption

On the disposal of the EIS shares, after the end of the three-year qualifying period, any capital gain is exempt from tax, providing income tax relief has not been withdrawn. This does not exempt any gain deferred into the original EIS investment.

Download ‘Tax incentives for the company’.

Do you qualify? For more information, contact our tax team, who will be happy to go through the criteria and how these might link with your activities.