SEIS Tax Relief Explained – The Complete GuideGuides
SEIS Tax Relief Explained – The Complete Guide

Contents

What is SEIS tax relief?

SEIS is a tax relief scheme created by the UK Government to encourage investment in seed-stage startups and businesses.

SEIS provides some of the world’s best tax reliefs for investors, by allowing up to 50% of your investment to be claimed back in income tax relief and offering significant capital gains tax reductions, amongst other benefits.

For businesses, SEIS helps you to raise the money you need to grow when you’re at a very early stage, by offering significant tax reliefs to investors in your company therefore making a potential investment into your business more attractive.

In this article, we outline some benefits and examples of SEIS tax relief, but please bear in mind that Seedrs is not authorised to give tax advice, and what applies to you will depend on your individual circumstances, so please be sure to get independent tax advice.

What are the SEIS Tax Relief Benefits for Investors?

When you invest in an SEIS eligible company, you can receive tax relief in the following ways:

  • SEIS Income Tax Relief

    If eligible, you can claim back up to 50% of the value of your investment in the form of income tax relief. Therefore, if you make an investment of £10,000, for example, you can save £5,000 in income tax.

  • SEIS Capital Gains Tax Relief:

    • Disposal Relief:

      Depending on your personal circumstances, if you sell your shares after having held them for at least 3 years, then you may be able to pay no Capital Gains Tax on your investment gains. Therefore, if your investment value triples over 3 years, and your shares initially worth £10,000 are now worth £30,000, you will pay no capital gains tax on your £20,000 gain if you decide to sell your shares. Please note that is is an example only, and due to startup equity being a high risk asset class, your investment value can also decrease over time.

    • Deferral Relief:

      You will not have to pay Capital Gains Tax until a later date if you dispose of an asset (any asset) and use the gain you made on that asset to invest in shares in a company that qualifies for SEIS. You will usually have to pay the Capital Gains Tax when you dispose of the SEIS shares.

  • SEIS Capital Gains Tax Reinvestment Relief:

    If you choose to reinvest gains from other non-SEIS investments into an SEIS eligible company, you will receive 50% Capital Gains Tax relief on the original investments. Therefore, if a prior investment has given you a gain of £10,000, all of which you decide to reinvest in an SEIS eligible company, 50% of that £10,000 gain will be exempt from Capital Gains Tax.

  • SEIS Loss Relief:

    • If the business performs poorly and you lose money on your investment, you may claim loss relief.
    • The loss relief you can claim is at the equivalent rate to the highest rate of income tax you pay. So if you pay income tax at a rate of 45%, you can claim up to 45% of your net loss in income tax relief.
    • For example, if you make a £10,000 investment and the business fails meaning your investment is no longer worth anything you could claim loss relief.  Firstly you could claim the 50% income tax relief (£5,000 in this example). Then of the remaining £5,000 you can claim 45% income tax relief on this £5,000 loss, so your total loss is only £2,750.
  • Applying tax relief to a previous year (carry-back):

    You can use a carry-back facility allowing you to treat shares as if they were acquired in the preceding tax year.

    • If, for example, you invest £10,000 in an SEIS eligible company in the 2018-19 tax year, your income tax relief would be £5,000 (50% of £10,000). You can apply to have that £5,000 carried back to the previous tax year (2017-2018) and relieved against your tax in that year, as long as you had not acquired more than £100,000 worth of SEIS shares in that year.
  • SEIS Inheritance Tax Relief:

    After holding the shares for 2 years, there will no longer be any Inheritance Tax on their value.

If you’re unclear on how this works for you, have a look at some of the examples below or use our SEIS tax relief calculator.

What are the SEIS Tax Relief Rules for Investors?

To qualify for these tax benefits, investors must abide by the following rules:

  • You can only invest up to a maximum of £100,000 in any number of qualifying companies in each tax year.
  • You must hold the shares for a minimum of 3 years. If you sell or gift the shares within the 3 year period, you will be subject to relief clawback.
  • You can not carry-forward your SEIS tax relief.
  • You must be a UK taxpayer.

SEIS tax relief examples

Looking to get an idea of how much you could actually benefit from SEIS? Here are three examples of how SEIS tax relief can increase your gains (and decrease your losses) from investments. Please note that eligibility for SEIS tax relief depends on individual circumstances.

Example 1: SEIS tax relief when your investment increases in value

The business you invest in performs well and triples in value over the course of 3 years, after which you sell your shares:

Your initial investment = £20,000

Income tax relief (50% of your investment) = £10,000

Your investment returns (after 3 years) = £60,000

Capital gains tax (on the sale of shares) = £0

Total returns = £70,000

In this example, you invested £20,000 in an SEIS eligible company. You could therefore claim income tax relief on 50% of the amount of your investment, saving you £10,000. When you sell your shares after 3 years, you benefit both from the gain in your investment, as well as having to pay no capital gains tax.

Example 2: SEIS tax relief when your investment stays the same value

The business you invest in stays the same value over the course of 3 years, after which you sell your shares:

Your initial investment = £20,000

Income tax relief (50% of your investment) = £10,000

Your investment returns (after 3 years) = £20,000

Capital gains tax (on the sale of shares) = £0

Total returns = £30,000

In this example, although your investment did not increase in value, you still had a £10,000 gain from the income tax relief on your investment.

Example 3: SEIS tax relief when your investment decreases in value

The business you invest in performs poorly and winds down, meaning your the value of your shares goes to zero.

Your initial investment = £20,000

Income tax relief (50% of your investment) = £10,000

At risk capital = £10,000

Loss relief (assuming income tax at 45%) = £4,500

Total returns = £14,500

In this example, instead of losing the total amount of your £20,000 investment, SEIS tax relief means your loss is reduced to £5,500 due to both the income tax relief on your initial investment (£10,000) and the loss relief (£4,500).

SEIS tax calculator

Use our SEIS tax calculator to find out exactly how much you could benefit from making an SEIS investment.

Please note that this calculator is for indicative purposes only and tax treatment depends on individual circumstances and is subject to change in the future.

What are the SEIS Benefits for Businesses?

The aim of SEIS is to help you raise seed funds to grow your company. It does this be offering significant tax reliefs to investors.

What are the SEIS Rules for Businesses?

  • Your company can’t raise more than £150,000 in total in any 12-month period.
  • Your company must not have more than £200,000 of gross assets at the time that the shares are issued.
  • Your company must have fewer than 25 full-time equivalent employees.
  • You can find out more information on whether your company is SEIS eligible here.

What’s the difference between EIS and SEIS?

The two government tax relief schemes are similar in their aim of encouraging investment into early-stage companies, but the main difference between the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) is that SEIS is focused on much earlier-staged companies than EIS.

Companies can raise a maximum of £150,000 under SEIS, whereas a company can raise up to £5 million under EIS. You can find out more about the EIS in our guide here.

How to Claim SEIS Tax Relief

We’ve streamlined the tax documentation process for investors on Seedrs. Your tax certificates are digitally stored in your Seedrs account, where you can easily download electronically when submitting your tax return.

You can claim for relief in the current tax year by letting HMRC know, who will then either change your PAYE code or make an adjustment on your Self Assessment on account that’s due. You can find out more about this process here.

Claims for losses and for relief for those losses must be made through the tax return and the time limit is the following 31 January, one year after the end of the tax year in which the loss occurred. This is 12 months after the deadline for submitting the tax return for that year.

Seedrs has partnered with SimpleTax to offer Seedrs investors online tax returns at 50% off the regular price, at only £18 using discount code SEEDRS18.

Alternatively, just pass on the relevant details to your tax advisor. Please note that Seedrs is not authorised to give tax advice.

It’s also easy on Seedrs to see which companies qualify for investment under the SEIS – just look for the SEIS badge on the Investment Opportunities pages on Seedrs.

We hope that you found this overview useful, but tax relief is a complicated subject and what applies to you will depend on your individual circumstances, so please be sure to get independent tax advice.

Finding SEIS investment opportunities

Explore SEIS eligible companies currently raising funds on Seedrs. Remember that when investing, your capital is at risk.

You can also find more information on SEIS on the HMRC website here

 

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