Top Tip – The Seed Enterprise Investment Scheme
Looking through some of the CII manuals, I noticed a distinct lack of information on the SEIS introduced last year (the younger sibling of the EIS).
Yet the tax relief for investors is good, and it is a great way for small businesses hit hard by the recession to get funding to help secure their future and in turn boost the economy.
The basics are:
To be eligible for the SEIS, the business must be:
- UK based, unquoted and under 2 years old
- Have less than 25 staff
- Have less than £200k in gross assets
Income Tax benefits for the investor
Relief at 50% up to the maximum of £100,000 per tax year and as with the EIS is given as an income tax deduction provided that the investor has enough of a tax liability to offset it against. There is, as with the EIS, a holding period of 3 years.
You can also ‘carry back’ which means you can treat the cost of shares bought in this tax year as if they had been bought last year (although not before 2012/13). The tax relief for the previous year is then given also, up to the allowed limit for each year.
Capital Gains Tax benefits for the investor
In the first year of the scheme there was a complete CGT break on gains made in 2012/13 that were then invested through a SEIS. This was going to be a first 12 month tax perk only. However to continue to investment momentum it was continued in this tax year albeit slightly modified. So if gains are made this year and reinvested this year (or next) then relief is at 50% of the re-invested amount. (The carry back facility equally applies to the CGT reinvestment relief too).
When the shares are sold or disposed of there is no CGT to pay as long as income tax relief was claimed and not withdrawn (so need to be held for 3 years).
100% inheritance tax relief is also available after 2 years.
Compared to the VCT and EIS the amount available to small and young companies (the limit is up to £150,000) is quite low but the scheme will allow funds to be available which might still not be forthcoming from a bank.
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