Quick guide to Seed Enterprise Investment Schemes
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