The Government introduced the Seed Enterprise Investment Scheme (SEIS) to encourage investment in small start-up companies. This scheme can be attractive to investors by offering generous tax reliefs for qualifying investments.

Tax breaks available under the scheme

  • Up-front income tax relief of 50% for subscriptions of shares by investors (with carry- back facility to the previous tax year).
  • No capital gains tax on the disposal of scheme shares which are held for more than three years.
  • An exemption from 50% of the CGT is available for disposals of assets where the gain is reinvested in SEIS qualifying shares in the same tax year (or treated as so invested using the carry back facility).

In order to be eligible for the scheme; the investment, the company and the investors need to meet certain conditions. As with the Enterprise Investment Scheme (EIS), there are numerous anti-avoidance rules.

Care should therefore be taken and professional advice sought by investors before making investments which they would wish to qualify under the scheme.

Some of the main company conditions

  • The company's qualifying trade must not be more than two years old.
  • The same exclusions from 'qualifying trade' as for the EIS, e.g. leasing, property development, etc.
  • The company must not be under the control of another company.
  • The company must have a permanent establishment in the UK.
  • The company must have fewer than 25 full-time employees at the time of the investment.
  • The company must have gross assets of less than £200,000 at the time of the investment.
  • The company will be able to raise a total of up to £150,000 under the scheme (total and not an annual limit).

Some of the main investor conditions

  • Annual investment limit of £100,000.
  • Directors can qualify but employees cannot.
  • No substantial interests in the company (broadly interests greater than 30%).

The main limiting factor from the perspective of the company seeking investment is that the amount it can raise under the scheme is limited to £150,000. Companies can however, go on to raise further funds under EIS.

We have taken great care to ensure the accuracy of this publication. However, the publication is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. © Smith & Williamson Holdings Limited 2015. 16/258 exp 16/09/2016