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Hero Seis Rules Benefits
SEIS EIS Published: 
Jun 13, 2019
Updated: Feb 05, 2024
5 min read
Expert reviewed

SEIS for investors: The complete guide

Kaylin S.
Copywriter
Kaylin Sullivan

Copywriter

Zlatina Trifonova
Expert contributor
Zlatina Trifonova

CX Team Lead, SEIS/EIS Specialist

Anthony Rose
Expert contributor
Anthony Rose

Co-Founder and CEO

Thinking of investing in a high-risk startup? Good news – you might be entitled to certain some tax reliefs if you do. The UK government created the Seed Enterprise Investment Scheme (SEIS) to encourage investors to invest in high-risk startups.

When you invest in an SEIS-eligible startup, you can deduct 50% of the amount of your investment from the amount of Income Tax you pay this tax year or last tax year. And you won’t pay Capital Gains Tax on any profits if you hold your shares for at least three years.

In this article, we explain the SEIS benefits and rules so you can better understand whether you could claim tax relief for your investment.

To learn more about how the scheme works, read our comprehensive guide:
SEIS: guide to the Seed Enterprise Management Scheme

Contents

Watch video: SEIS for investors

SeedLegals CEO Anthony Rose explains how the Seed Enterprise Investment Scheme can benefit investors:

What are the benefits of SEIS for investors?

Seis Benefits Investors

The SEIS benefits for investors include various types of tax relief. We’ve covered them all below.

Income Tax relief

  • Up to 50% Income Tax relief. For example, if you make an investment of £10,000 that qualifies for SEIS, you can claim an Income Tax reduction of £5,000

Capital Gains Tax relief

  • No CGT on any gains from the SEIS investment, as long as shares are held for at least 3 years
  • 50% Capital Gains Tax (CGT) relief on gains from an investment in a non-SEIS company, if the gains are reinvested into an SEIS-eligible company

Loss relief

  • If a business doesn’t do well and you end up selling your SEIS shares at a loss, you can claim SEIS loss relief – there’s more about this in our post, SEIS loss relief

Inheritance Tax relief

  • There’s no Inheritance Tax on SEIS shares as long as they are held for at least 2 years
Tax relief can be carried back to the previous tax year, as long as you haven’t already invested the maximum you're allowed under SEIS in that year (The maximum is £250,000). This means you can opt for all or part of your SEIS shares acquired in the current tax year to be treated as though they had been acquired in the previous one.

What are the rules of SEIS for investors?

Seis Rules For Investors

For your investment to qualify for SEIS tax relief, you have to adhere to a set of SEIS rules:

1. The company must be eligible

First and foremost, the company you invest in must be eligible for SEIS for you to claim tax benefits. To be eligible for SEIS, a company must meet certain criteria, such as being a UK-based company, having fewer than 25 employees and £350,000 or less in gross assets (read the full criteria in our Guide to SEIS). Make sure you check that the company you’re considering investing in meets these criteria before investing – ask if they have Advance Assurance.

 

Zlatina Trifonova

Advance Assurance gives you the security you need to make an investment and know that the company you’re investing in meets the eligibility criteria of the SEIS scheme. This is a very important element of your due diligence – investing in companies without Advance Assurance puts you at risk of not getting the tax relief.

Zlatina Trifonova

SEIS/EIS Specialist,

SeedLegals

    2. You must be liable for UK Income Tax

    You don’t need to be a UK resident to claim SEIS, but to claim Income Tax relief, you must have income which is liable for UK Income Tax.

    3. You can’t be an employee of the company you’re investing in – but you can be a paid director

    You and any of your associates must not be an employee of the company between the date the shares are issued until three years later, on the third anniversary of that share issue. However, you can be a director, and receive reasonable compensation for this position. To understand more about this, read SEIS/EIS rules for investor directors.

    What is an ‘associate’?
    An associate includes business partners, trustees, and relatives (spouses, civil partners, parents, children, etc.). Brothers and sisters are not considered associates for SEIS purposes. Read the full details in HMRC’s Venture Capital Schemes Manual.

    3. No substantial interest in the company

    You must not have any ‘substantial interest’ in the company you’re investing in, at any time from the incorporation of the company until the third anniversary of the date of the share issue.

    What is ‘substantial interest’?
    If an investor directly or indirectly possesses or is entitled to acquire more than 30% stake in the company, this is classed as a substantial interest. The 30% includes shareholdings of associates.

    4. No related investment arrangements

    You won’t qualify for SEIS relief if you’ve subscribed for the shares as part of a reciprocal arrangement. For example, if you make an agreement with the owner of Startup A to invest in Startup B through SEIS in exchange for their investment in Startup A, you’d be disqualified from claiming your SEIS relief.

    5. No linked loans

    No loans should be made to you or your associates which are linked to the company you’re investing in. This applies from the date of incorporation of the company until the third anniversary date of the shares were issued.

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    6. No tax avoidance

    To be eligible for SEIS relief, an investment must be made for genuine commercial reasons and not as part of a scheme or arrangement intended to avoid tax.

    7. Your investment must be less than £200K

    From April 2023, you can invest a maximum of £200,000 per year for SEIS in exchange for a 50% tax break and a Capital Gains Tax exemption on any profits you make from the sale of shares after three years. You can carry back your tax relief to the previous year.

    8. You must keep the shares for at least three years

    If you sell or dispose of your shares in a company before the third anniversary of your share issue, your SEIS relief can be withdrawn or reduced. You must hold your shares for a minimum of three years to receive the full SEIS tax benefits.

    If you transfer the shares to a spouse or civil partner, it doesn’t count as disposal for SEIS.

    9. You must pay for your shares upfront

    To receive the full SEIS tax benefits, you must pay for your shares upfront in full and the shares issued must be ordinary shares.

    10. You must not receive value from the company for three years

    Your SEIS relief could be withdrawn or reduced if you receive value from the company or from a person connected with that company at any time from the incorporation of the company to the third anniversary of the share issue date.

    An investor is considered to have received value from the company if:

    1. the company repays, redeems or repurchases any of its share capital belonging to the investor
    2. the company repays a debt owed to the investor
    3. the company provides a benefit or facility to the investor

    If you’re not sure about whether you have received ‘value’ from the company, read HMRC's guidelines on value

    11. No put option or call option for three years

    Your SEIS relief could be withdrawn or reduced if there’s a put option or call option over the shares at any time before the third anniversary of the date the shares are issued. Read the definition of put and call options in HMRC’s tax manual.

    These are all the SEIS rules for investors. If you still have questions about SEIS rules and benefits for investors, book a call with one of our experts and we’ll get them answered fast.

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