Seed Enterprise Investment Schemes offering some of the best tax breaks in the UK are about to come online.
From April 6, investors can put money in to start-up companies destined to encourage entrepreneurs to set up the next Facebook, Google or eBay – and in return receive up to 78% tax relief.
SEIS investments are not for everyone – as always, high risk generates high returns.
For investors who want to know more about SEIS, here are some key questions answered:
How much is a typical SEIS investment?
The maximum any one investor can pay in to a SEIS in a single tax year is £100,000 and the maximum across multiple tax years is limited to £150,000.
How do the SEIS tax breaks work?
Investors can pick up maximum tax relief by combining two tax breaks:
• Income tax - Every tax payer qualifies for the 50% reduction in income tax regardless of the rate they pay income tax. The maximum reduction is £50,000 based on a £100,000 investment. Artificial accounting, like creating a loss or repayment is not allowed – it’s a strict reduction on tax due.
• Capital gains tax – Higher rate tax payers, paying income tax at 40% or more, can earn a 28% exemption on a capital gain that is disposed of and reinvested in to a SEIS in the 2012-13 tax year. Income tax paid at 20% or less, will qualify for a CGT exemption of 18%.
If I run the company, can I make a SEIS investment?
No. Anyone who controls 30% or more of the shares or voting rights, directly or indirectly, or is an employee of your company is barred from making a SEIS investment.
Can I set up a SEIS company as a subsidiary of an existing business?
No. A SEIS is a new company that is not a subsidiary or a member of a partnership.
The company is not trading, can we ask for SEIS investment?
Yes. Providing you are a genuine start-up business and meet the qualifying criteria, which includes:
- Incorporated no more than two years ago
- Having 25 or less employees
- Having a permanent UK base
- Having gross assets of less than £200,000
- Has received no Enterprise Investment Scheme (EIS) or Venture Capital Trust (VCT) funds