The Seed Enterprise Investment Scheme (SEIS) was introduced by the UK government in April 2012, to encourage investors to commit funding to UK startups by offering attractive tax reliefs.
For investors, here is a recap of some of the benefits of making a SEIS investment:
- You can claim tax relief on up to £100,000 of SEIS investments per tax year.
- You could claim up to 50% Income Tax relief on the value of your investments.
- Earnings from your SEIS shares are potentially exempt from Capital Gains Tax (CGT).
- If you reinvest profits of SEIS shares back into the SEIS they are exempt from CGT.
- You can claim loss relief if the SEIS company fails at any point.
This can all sound very attractive to potential SEIS investors. One question many people have, however, is whether SEIS can be carried back or forward when filling out their tax returns.
In this short guide, our team here at Bure Valley Group will be answering those and other questions. Please note that this content is for information purposes only. It does not constitute financial advice or investment advice.
The value of your SEIS investment might go up or down over time, and you might not get back the amount that you originally invested.
Can you carry back SEIS relief?
As mentioned above, you can claim back 50% of your SEIS investment against your Income Tax bill within a tax year. So, if you invested the full £100,000 into a SEIS-qualified company you could claim back £50,000 in Income Tax relief.
The good news is, you can carry back this SEIS relief to the immediate tax year preceding your SEIS investment. This assumes, of course, that you have not exceeded your SEIS relief limit for this previous tax year.
Please note, however, that the SEIS relief is available as a reduction on your liability to Income Tax. So, if the relief is more than your tax relief for the previous tax year, for example, then this SEIS is effectively frittered away.
For instance, suppose your Income tax for the previous tax year was £40,000. However, suppose you also made a £100,000 SEIS investment which you failed to claim Income Tax relief on. In this situation, you could potentially claim back £50,000 in Income Tax from the previous tax year. However, since your Income Tax was £40,000, this means you would have missed out on £10,000 in available SEIS relief.
Another important thing to note is that in 2019-20, SEIS shares must be held by the investor for a minimum period otherwise the SEIS relief will be taken away. Typically, this period is at least three years from the date the SEIS shares were issued.
Can you carry forward SEIS relief?
The answer to this question is very simple. In 2019-20, the answer is no. It is not possible to carry forward SEIS relief via a tax return or other means.
Qualifications to be a SEIS investor
If you are interested in investing in SEIS-qualifying companies to take advantage of the attractive tax reliefs available (including SEIS carry back), then you must meet conditions such as the following in 2019-20:
- You must be a UK taxpayer and resident in the UK.
- You must be at least 18 years old.
- You cannot be connected to the SEIS company in question (e.g. if your interest in the business is judged to exceed 30%).
One important thing to note is the limit on SEIS funding that a company is allowed to receive. In 2019-20, the rules state that the company cannot gain more than £150,000 of SEIS investment within three years. So, if you’re interested in investing in a particular SEIS company make sure that it has not already used up its allowance in this respect.
If you are at all uncertain about whether or not you meet the conditions to become a SEIS investor, then we recommend you consult a professional tax adviser.
Conditions for “eligible SEIS shares”
You’ll notice that the SEIS tax reliefs available to investors hinge heavily on whether or not a SEIS investors’ shares are deemed to be “eligible.” Here are some of the conditions in 2019-20:
- The shares must be “new”.
- These shares need to have been fully paid for, in cash.
- The shares must come with no special conditions attached to them; they must be “ordinary.”
Companies which can qualify for SEIS
Not all businesses are allowed to apply for SEIS funding or claim SEIS status. There are certain conditions which they must meet, including:
- The company must have been trading for no longer than 2 years.
- The company must not be listed on a recognised stock exchange.
- It cannot be a subsidiary or controlled by another business.
- The company must have a permanent address in the UK.
- The company must not be engaged in “excluded activities” (e.g. steel production).
- The company must employ fewer than 25 people.
- The company must not own more than £200,000 in gross assets.
If you are an investor or business owner seeking funding and you are interested in SEIS, then we invite you to join our network. Here at Bure Valley Group, we operate an innovative and exclusive network of SEIS investors and projects, enabling investors and business owners to find mutually-beneficial opportunities to grow their portfolio or business.
Get in touch today to find out more about our exclusive SEIS projects, or to inquire about how we can assist you with the application process for SEIS funding:
+44 160 334 0827