Following the announcement in the Autumn Statement, the Government has introduced the new Seed EIS (SEIS) for shares issued after 5 April 2012. The rules are summarised as follows:
- in order to qualify for the SEIS, a company must be undertaking, or planning to undertake, a new business, and have fewer than 25 full-time employees and gross assets of less than £200,000 at the time of the SEIS investment;
- qualifying companies will be able to raise a total of up to £150,000 under the scheme, and funds raised must be used within three years. Once 70% of funds have been utilised, the company may raise funds under the EIS or from VCTs;
- the scheme offers up-front income tax relief of 50% for subscriptions of shares by investors of up to £100,000 (which can include directors). It should be noted that a claim for relief under SEIS may not be made until at least 70% of the money raised by the issue has been spent by the issuing company for the purposes of the qualifying business activity for which it was raised;
- the individual investor limit for SEIS will be £100,000 per tax year; and
- there is no CGT payable on the disposal of SEIS shares held for more than three years.
Furthermore, the rules provide for an exemption from CGT on gains realised from disposals of other assets in 2012/13 where the gains are reinvested through the new SEIS in the same year.
The new SEIS is a welcome development, enhancing the EIS tax reliefs available for equity investments in smaller companies. However, it is widely thought that the limit of £150,000 that a company can raise under the scheme is far too small to make any meaningful difference to the funding options for small companies.
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