EIS and SEIS Tax Reliefs
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 that are permanently established within 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 companies by providing individuals with income tax relief at a rate of 50% on the value of the investment. You can only invest up to a maximum of £100,000 into SEIS qualifying companies in each tax year.
In addition to this, investors can also benefit from CGT reliefs within SEIS. Reinvestment relief allows individuals to reinvest any chargeable gains from the disposal of any asset into SEIS shares. This allows for the deferral of CGT which will crystallise on the disposal of SEIS shares. Individuals are then also able to treat up to 50% of the chargeable gain as totally exempt from CGT and the remainder crystallises on the disposal of the SEIS shares.
As long as SEIS shares are held for at least 3 years, you will not have to pay CGT on the disposal of SEIS shares. If you make a loss on the disposal, you can set this against your chargeable gains or income.
The second scheme, the Enterprise Investment Scheme (EIS), is designed to encourage investment in slightly later-stage qualifying companies by providing investors with up to 30% of their investment back in income tax relief. You can only invest up to a maximum of £1 million into EIS qualifying companies in each tax year.
Investors can also benefit from disposal relief, where you will not have to pay CGT on a gain from the disposal of EIS shares, as long as the shares have been held for at least 3 years. If you make a loss on the disposal, you can set this against your chargeable gains or income.
Also, where a gain from the disposal of any asset is invested in EIS shares, this gain can be deferred and will crystallise on the disposal of the EIS shares.
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.