To stimulate and support entrepreneurship, Her Majesty’s Revenue and Customs (HMRC) offers two tax incentive schemes for UK taxpayers who invest in qualifying early-stage and growth-focused businesses which have permanent establishments in the UK. Please note that investors who are not UK taxpayers are unable to take advantage of these schemes and the schemes are subject to change.
The first scheme, the Seed Enterprise Investment Scheme (SEIS), encourages investment in qualifying new seed-stage startups companies by providing individuals with 50% of their investment back in income tax relief. Plus, investors can benefit from 50% capital gains tax relief on gains which are reinvested in SEIS eligible shares (this was 100% in for the first year SEIS was introduced, in the 2012/2013 tax year). Any gain arising on the disposal of the shares may also be exempt from capital gains tax, and loss relief is available if the disposal results in a loss.
For investors who realised capital gains during the 2013-14 tax year, SEIS reliefs allow you claim up to:
- 78% of your investment back if the startup succeeds – and you pay no CGT when you sell your shares; or
- 100.5% of your investment back if the startup fails – allowing you to invest in startups with the potential of full downside protection.
If you realised capital gains during the 2014-15 tax year, SEIS and related reliefs allow you claim up to:
- 64% of your investment back if the startup succeeds – and you pay no CGT when you sell your shares; or
- 86.5% of your investment back if the startup fails – significantly reducing any losses you incur when investing in startups.
The second scheme, the Enterprise Investment Scheme (EIS), is designed to encourage investment in qualifying slightly later-stage companies by providing investors with up to 30% of their investment back in income tax relief. Plus investors can defer any capital gains tax on gains which are reinvested in EIS eligible shares, gains arising on the disposal of the shares may be exempt from capital gains tax, and loss relief is available if the disposal results in a loss.
UK tax payers should note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. To learn more about how SEIS or EIS works, please read the online HMRC guidance or contact your professional tax advisor.
These schemes provide great incentives for UK taxpayers who are either active investors or are just looking to support their friends and family in their entrepreneurial projects. Many Seedrs campaigns are looking to raise investment under one of these schemes and are identified as eligible with a small SEIS or EIS logo. Seedrs offers a simple and straightforward way to invest in a wide range of SEIS and EIS eligible companies and we take care of all the paperwork to help investors claim back their reliefs.