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SEIS Investments

Can SEIS relief be carried back or forward?

By | SEIS Investments

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.

 

Interested?

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

[email protected]

How Much Can I Invest in SEIS?

By | SEIS Investments | No Comments

In 2019-2020 you can invest up to £100,000 each financial year into UK companies which qualify for the Seed Enterprise Investment Scheme (SEIS).

This exciting investment scheme is still relatively unknown amongst investors, but it offers great opportunities for investors to engage with innovative startups whilst reducing their risk exposure.

This short guide outlines, in broad terms, how much you can invest in SEIS and explains some of the great benefits on offer. As we’re sure you’re aware, please note that this content is for information purposes only and should not be taken as investment advice. Capital is at risk and you may get less money back than you originally put in.

 

SEIS Benefit 1 for investors: 50% Tax Relief

One of the key benefits of SEIS to investors is the attractive tax reliefs available.

In particular, investors can receive a 50% tax relief on their SEIS investments (which, remember, must be no higher than £100,000 per UK tax year).

In practical terms, that means you could make a £50,000 SEIS investment and get £25,000 back in the form of income tax relief.

 

SEIS Benefit 2 for investors: CGT Tax Relief

Under SEIS, any gains you make on shares which you own within a SEIS-qualifying company are also usually exempt from Capital Gains Tax.

The main condition here is that you must hold the shares for at least 3 years

Suppose, therefore, that you make an investment of £20,000 and this triples in value over three years. Your shares are now worth £60,000, and if you decide to sell them then the £40,000 gain you have made should not be subject to CGT.

Of course, this is just an example and it’s important to remember that your investment might also go down in value over time.

One important caveat to mention here is “deferral relief.” Here, you can “put off” any CGT on any asset which you sell and then go on to invest in a SEIS-qualifying company. However, you will probably have to pay CGT on the SEIS shares when you eventually do sell them.

 

Benefit 3 of SEIS for investors: Loss mitigation

You can off-set any investment losses against your Income Tax bill, too. The amount you get back is equivalent to your highest income tax bracket, which can significantly reduce your risk.

For instance, suppose you are taxed at the 45% rate. That means you could claim back up to 45% of your SEIS investment if it fails. So, imagine the following scenario:

  • You invest £20,000 into a SEIS-qualifying business.
  • You get 50% of this amount back in the form of a 50% tax bill reduction.
  • Your at-risk capital is, therefore, actually £10,000.
  • The company, unfortunately, fails and so leads to a total loss in share value.
  • Your loss relief on this £10,000 is 45% (i.e. your highest income tax bracket).
  • Your real loss is, therefore, £6,500. Not £20,000.

 

Benefit 4 of SEIS for investors: Inheritance tax relief

As if the above benefits were not enough, if you hold your shares in a SEIS company for at least two years then they can be exempted from your inheritance tax bill.

So, take the example from point 2 above, once more. Suppose your £20,000 SEIS investment grows to £60,000 over three years. Soon after this point, you die and leave your investments to your sons and daughters. This £60,000 should be able to pass to them, free of IHT.

 

Important rules for SEIS investors

To be able to invest in SEIS-eligible companies, you must:

  • Be a UK taxpayer.
  • Only invest up to £100,000 into SEIS-qualifying schemes each financial year.
  • Hold your shares for at least 3 years, or risk experiencing “relief clawback”.
  • Not carry-forward tax relief under SEIS.

 

Rules for SEIS companies

There are not just rules for investors under SEIS, but also for companies looking to receive funding via the scheme. In particular:

  • A company can raise up to a maximum of £150,000 via SEIS funding.
  • The business must employ no more than 25 full-time staff.
  • The company cannot have traded for more than 2 years.
  • No more than £200,000 worth of assets can be possessed by the business.
  • The business must carry out a government-defined “qualifying trade”. Examples of trades which might not qualify include financial services and property development.

 

Guidance for investors: things to look for

Naturally, if you are interested in investing via the SEIS scheme then you should check whether the company pitching to you meets the criteria outlined immediately above.

Moreover, it is also a good idea to look for evidence of “advanced assurance”. This is whether HMRC grants the company seeking SEIS status a formal letter, which usually takes the form of a certificate outlining the benefits that the investors will receive from the SEIS investment.

You will also naturally want to consider whether you are interested in the pitch, and also “stress test” the viability of the company’s business model to ensure your investment has the best possible chance of meeting success.

At Bure Valley Group, we help with this latter point by gathering a set of “pre-stress-tested” companies which qualify for presentation to our network of experienced SEIS investors.

These businesses are exciting and full of potential, driving innovation in a number of key industries. If you are interested in exploring our range of current EIS and SEIS investment opportunities, then we invite you to check out our SEIS portfolio here.

If you have any questions about how SEIS works or how we at Bure Valley can assist you in incorporating SEIS opportunities more into your investment portfolio, then we’d love to hear from you. Get in touch via +44 160 334 0827 or [email protected].