The Seed Enterprise Investment Scheme (SEIS) promises investors a lot – but some quirky rules need following to make the most of the tax breaks.
Guidance from HM Revenue & Customs would have most investors believing that tax reliefs are automatic – but they are not.
How long do I have to keep SEIS shares?
The usual investment term is 36 months to trigger SEIS income tax and capital gains/loss reliefs.
Investors who leave the scheme early can expect HMRC to claw back any income tax refund and to refuse claims for CGT or loss relief.
For Inheritance Tax Relief to kick in, investors must hold their SEIS shares for at least two years and if they gift them, the person receiving them must keep them until the donor dies.
Do all investors qualify for SEIS tax reliefs?
No. If the investor is an employee of the SEIS company, they cannot invest – but if the investor is a director, then that’s OK providing they do not have an employment contract with the company.
This lets investors join the board to monitor how the company is performing.
Investors with 30% or more of the company’s shares are also excluded – and that control extends to voting rights or rights over assets on winding up.
Shareholders in a company that loses SEIS status before the 36 month investment term ends are also risk losing their tax breaks.
How do I know if I can claim SEIS tax breaks?
Most, but by no means all, companies are pre-approved with SEIS status by HMRC. They should have a compliance pack and registration documents to confirm pre-approval.
The company needs to file a Form SEIS1 to prove HMRC accepts the scheme and investors need a SEIS3 to file with their tax returns to show that they qualify for the scheme’s tax breaks
Can I invest more than £100,000 in a SEIS?
Yes but income tax relief is only offered on a maximum £100,000 investment in each tax year.
Companies can raise an extra £50,000 from investors, but the money does not qualify for tax breaks.
Shareholders do not have to show a minimum investment to qualify for tax relief.