SEIS investor perspective
Seed Enterprise Investment Scheme was introduced by George Osborne in the 2011 Autumn Statement and provides some enhanced tax reliefs compared to those available to EIS investments.
The investor can receive 50% income tax relief on the investment in SEIS, with the ability to carry back the relief to the previous year. However, as this is aimed at smaller new companies, the investment limits are lower, with a maximum investment of £100,000 in a tax year.
The capital gains tax relief for SEIS also differs from EIS; with a conditional 50% exemption on the lower of the capital gain or amount invested.
As with EIS shares, gains on SEIS shares themselves are exempt from capital gains tax once they have been held for three years, with relief being available for any losses that are realised.
Beverley sells a residential property generating £40,000 capital gain, she invests £20,000 into Cold Snap Ltd, and the shares qualify for SEIS relief.
Summary of reliefs:
- £10,000 of income tax relief can be claimed either in the current and/or the previous tax year;
- £10,000 of the £40,000 gain is conditionally exempt from capital gains tax, equating up to £2,800 in tax relief if the associated income tax relief is not withdrawn;
- The sale of the Cold Snap shares following the termination date will themselves be exempt from capital gains tax;
- If the company folds and no funds are received back by Beverly, she may be able to convert the £10,000 eligible capital loss into an income tax loss attracting up to £4,500.
Even in the scenario where no element of the £20,000 invested is returned, Beverly may be able to reclaim up to £17,300 in tax relief.