The Seed Enterprise Investment Scheme (SEIS) is designed to help small, early-stage companies to raise equity finance by offering a range of tax reliefs to individual investors who purchase new shares in those companies. It complements the existing Enterprise Investment Scheme (EIS) which will continue to offer tax reliefs to investors in higher-risk small companies. SEIS is intended to recognise the particular difficulties which very early stage companies face in attracting investment, by offering tax relief at a higher rate than that offered by the existing EIS.
SEIS applies for shares issued on or after 6 April 2012. The rules have been designed to mirror those of EIS as it is anticipated that companies may want to go on to use EIS after an initial investment under SEIS.
More detailed guidance on the rules for EIS and SEIS can be found in HMRC's Venture Capital Schemes manual which can be found by following the link below. This guidance note provides some further links to specific pages in that manual.
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Income Tax relief is available to individuals who subscribe for qualifying shares in a company which meets the SEIS requirements, and who have UK tax liability against which to set the relief. Investors need not be UK resident.
The shares must be held for a period of 3 years from date of issue for relief to be retained. If they are disposed of within that 3 year period, or if any of the qualifying conditions cease to be met during that period, relief will be withdrawn or reduced.
Relief is available at 50% of the cost of the shares, on a maximum annual investment of £100,000. The relief is given by way of a reduction of tax liability, providing there is sufficient tax liability against which to set it. A claim to relief can be made up to 5 years after the 31 January following the tax year in which the investment was made.
Jenny invests £20,000 in the tax year 2012-13 (6 April 2012 to 5 April 2013) in SEIS qualifying shares. The SEIS relief available is £10,000 (£20,000 at 50%). Her tax liability for the year (before SEIS relief) is £15,000 which she can reduce to £5,000 as a result of her investment.
James invests £20,000 in the tax year 2012-13 in SEIS qualifying shares. The relief available is £10,000, as above. His tax liability for the year (before SEIS relief) is £7,500. James can reduce his tax bill to zero as a result of his SEIS investment, but loses the rest of the relief available.
There is a 'carry-back' facility which allows all or part of the cost of shares acquired in one tax year to be treated as though the shares had been acquired in the preceding tax year. The SEIS rate for that earlier year is then applied to the shares, and relief given for the earlier year. This is subject to the overriding limit for relief each year. Please note that there is no SEIS rate for a year earlier than 2012-13, so there is no scope for carrying relief back before that year.
This relief was originally only available for the tax year 2012-13 but has been extended to 2013-14 at half the rate. If you disposed of an asset that would have given rise to a chargeable gain in 2012-13, and reinvested all or part of the amount of the gain in shares which also qualify for SEIS income tax relief, the amount reinvested may be exempted from Capital Gains Tax. If you dispose of an asset that would give rise to a chargeable gain in 2013-14, and reinvest all or part of the amount of the gain in shares which also qualify for SEIS income tax relief, half of the amount reinvested may be exempted from Capital Gains Tax. Capital gains re-investment relief is also subject to the £100,000 annual investment limit which applies for income tax relief. Thus for 2012-13 gains of up to £100,000 may be exempted and for 2013-14 up to £50,000. The latest date for making a claim for 2012-13 is 31 January 2019 and, for 2013-14, 31 January 2020.
The asset does not have to be disposed of first; the investment in SEIS shares can take place before the disposal of the asset, providing that both the disposal and investment take place in the same year.
If you make use of the 'carry-back' facility for the purposes of SEIS income tax relief note that any claim to reinvestment relief must match the year in which the shares are then treated as issued. If you are issued SEIS shares in 2013-14, you may want to claim SEIS income tax relief as if all or some had been issued instead in 2012-13. If you do so, the shares treated as issued in 2012-13 are also treated as issued in 2012-13 for the purposes of re-investment relief and you cannot claim re-investment relief on gains made in 2013-14 in respect of those shares.
The Capital Gains Manual gives guidance on when an asset is disposed of for CGT purposes, starting at paragraph CG14250.
Benjamin sells an asset in June 2012 for £200,000 and realises a chargeable gain (before exemption) of £80,000.
If he makes qualifying investments of only £20,000 in SEIS shares in 2012-13, he can claim that £20,000 of his gain is exempted from CGT and he will be liable to CGT on a chargeable gain of £60,000 on the disposal of the asset in June 2012.
(Allowable losses and the CGT annual exempt amount can be set off against the remaining £60,000 chargeable gain in the normal way).
Neela sells an asset in June 2013 for £200,000 and realises a chargeable gain (before exemption) of £80,000.
If she makes qualifying investments of at least £80,000 in SEIS shares in 2013-14, and all other conditions are met, she can claim that £40,000 (half of the gain)is exempted from CGT. She does not need to invest the whole £200,000 sale proceeds in order to get full exemption.
If you have received Income Tax relief (which has not subsequently been withdrawn) on the cost of the shares, and the shares are disposed of after they have been held for at least three years, any gain is free from Capital Gains Tax.
Please note: if no claim to Income Tax relief is made, then any subsequent disposal of the shares will not qualify for exemption from Capital Gains Tax.
The company can follow a share issue under SEIS with further issues of shares under EIS, or investment from a Venture Capital Trust (VCT). However, it must have spent at least 70 per cent of the monies raised by the SEIS issue before it can do so.
A company cannot issue shares under the SEIS scheme if it has already had investment from a VCT, or issued shares in respect of which it has provided an EIS compliance statement (EIS1).