The Seed Enterprise Investment Scheme (SEIS) will have a limited life – only five years to 5 April 2017. It allows investors to receive 50% income tax relief on the amount invested and up to 28% capital gains tax relief for a limited period. Also if you make a loss on the SEIS shares you can get further income tax relief for that loss.
This sounds very attractive, but you need to be aware of the various traps and limitations of the SEIS before you commit your money. In particular SIES can only be used to invest in small companies (asset value of no more than £200,000 and up to 25 employees), which the SEIS investor can’t control. In fact the SEIS investor together with his associates must not own more than 30% of the company. Each company can raise up to £150,000 of investment under SEIS in its lifetime, and each investor can invest up to £100,000 per tax year.
The greatest amount of tax relief is achieved by reinvesting a capital gain made in the year ended 5 April 2013 in SEIS shares, when you get both the income tax relief at 50% and full exemption from tax on the reinvested gain. The SEIS shares must be eligible for income tax relief for 2012/13. This means the SEIS shares must be issued in 2012/13 or issued in 2013/14 and subject to an election to carry back the tax relief to 2012/13.
If you are thinking of investing under SEIS or using SEIS to attract an outside investor to your company, please talk to us first as there are lots of hoops to jump through.