--- title: "SEIS tax relief: guide for investors" id: "47867" type: "post" slug: "seis-tax-relief" published_at: "2023-06-30T16:46:06+00:00" modified_at: "2024-08-20T15:44:48+00:00" url: "https://seedlegals.com/resources/seis-tax-relief/" markdown_url: "https://seedlegals.com/resources/seis-tax-relief.md" excerpt: "Get in at the ground floor of the next tech unicorn, cash in big at exit. That’s the ideal scenario. Find out how SEIS tax relief can help limit your risk." taxonomy_category: - "Investor Hub" --- 8 min read Expert reviewed This article has been fact-checked by a SeedLegals subject matter expert. [Meet our experts](https://seedlegals.com/authors-and-experts/) and learn more about our review process and quality assurance in our [editorial policy](https://seedlegals.com/editorial-policy/) . # SEIS tax relief: guide for investors Published: Jun 30, 2023 Updated: Aug 20, 2024 Contents [What is SEIS tax relief and how does it work?](#what-is-seis-tax-relief-and-how-does-it-work) [SEIS tax relief examples](#seis-tax-relief-examples) [How to qualify for SEIS tax relief](#how-to-qualify-for-seis-tax-relief) [When can you claim SEIS tax relief?](#when-can-you-claim-seis-tax-relief) [How to claim SEIS tax relief](#how-to-claim-seis-tax-relief) [How to claim SEIS loss relief](#how-to-claim-seis-loss-relief) [How do SEIS funds work?](#how-do-seis-funds-work) [SeedLegals for Investors: the smart way to run your deals](#seedlegals-for-investors-the-smart-way-to-run-your-deals) [WriterKirsty MacSweenSenior Copywriter](https://seedlegals.com/resources/author/kirsty/) [ExpertZlatina TrifonovaCX Associate - Funding Rounds](https://seedlegals.com/resources/author/zlatina-trifonova/) [ExpertJonny SeamanInvestor Partnerships Manager](https://seedlegals.com/resources/author/jonny-seaman/) [ExpertJamie WilliamsTax Director at Cadre Advisory](https://seedlegals.com/resources/author/jamie-williams/) Get in at the ground floor of the next tech unicorn, cash in big at exit. That’s the ideal scenario. But investing early comes with bigger risks. You don’t know if a company will actually take off or if you’ll end up losing cash. Luckily, the UK government sweetens the deal for investors who take a chance on early-stage companies to get them up and running. HMRC’s Seed Enterprise Investment Scheme (SEIS) offsets some of the unknowns by giving investors generous [tax relief](https://seedlegals.com/investors/investor-seis/) . ##### SeedLegals for Investors ### Manage your deals the smart way Speed up negotiations and cut down on admin with the help of our experts. [Book a demo](https://seedlegals.com/meetings/investor-interest/) ## What is SEIS tax relief and how does it work? SEIS is one of the UK government’s [venture capital schemes](https://www.gov.uk/guidance/venture-capital-schemes-tax-relief-for-investors) . It offers tax relief to private investors who put money into early-stage startups. These startups innovate, create jobs and grow the economy – all things the UK government wants to promote. But they carry more risk than traditional investments like property and the stock market. So as a reward for taking a bigger risk, the UK government offers tax incentives to help bring this risk factor down. Because [SEIS is designed to support small, seed-stage businesses](https://seedlegals.com/resources/seis/) – aka, the very riskiest ones – it offers some of the most generous perks to investors of all the venture capital schemes. The great news is you can claim tax relief from multiple venture capital schemes in the same year, so, for example, you can claim both SEIS and [EIS tax relief](https://seedlegals.com/resources/eis-tax-relief/) at the same time. Looking for SEIS opportunities? Explore our list of [active SEIS investment funds](https://seedlegals.com/resources/most-active-seis-investment-funds-in-the-uk/) . ### SEIS and Income Tax relief Under SEIS, you get back 50% of the amount you invest as a reduction in your Income Tax bill. For example, say you invested £10,000 in an [SEIS-eligible company](#seis-company-rules) . When you [file your tax return](#how-to-claim-seis-tax-relief) , you list the details of your SEIS-qualifying investment to reduce your Income Tax bill by £5,000. You can invest up to **£200,000 per year across SEIS businesses**. (In April 2023, this limit increased from £100,000.) ### Capital Gains disposal relief Normally when you come to sell your shares, you pay Capital Gains Tax on the profit you make. But with SEIS, you get to keep it all. You pay 0% CGT tax no matter how small or large the eventual exit is. There are restrictions on when you can sell your SEIS shares. To qualify for SEIS tax relief, you have to hold the shares for 3 years before you ‘dispose of ’ (ie, sell) them. ### Capital Gains reinvestment relief You can offset 50% of Capital Gains Tax charges when you reinvest taxable profit made from a non SEIS-eligible company into an SEIS-eligible company. ### Loss relief If you haven’t made a profit when you come to sell your shares, you can set that loss against your Income Tax bill. See an example of how that works on this [gov.uk page](https://www.gov.uk/government/publications/seed-enterprise-investment-scheme-income-tax-and-capital-gains-tax-reliefs-hs393-self-assessment-helpsheet/hs393-seed-enterprise-investment-scheme-income-tax-and-capital-gains-tax-reliefs-2020#can-you-claim-a-loss) . The amount you can claim as loss relief is your at-risk investment (the amount of money you lost *minus* the amount you’ve already received in Income Tax relief) multiplied by your Income Tax rate (20%, 40% or 45%) > The scheme is powerful in its own right and loss relief is the cherry on the cake when it comes to derisking. It means that if your investment doesn’t work out, you can recoup a significant chunk of the lost money. > > [Jonny Seaman](https://seedlegals.com/resources/author/jonny-seaman/) > Investor Partnerships Manager, > > [SeedLegals](https://seedlegals.com/) > > - [https://www.linkedin.com/in/jonnyseaman/](https://www.linkedin.com/in/jonnyseaman/) ### Inheritance Tax relief SEIS shares aren’t subject to Inheritance Tax, so long as they have been held for 2 years. ## SEIS tax relief examples > As the calculations show, there is significant benefit to an investor when a gain is made on an SEIS investment, but the scheme also minimises risk. Your total exposure as an additional rate taxpayer is just 27.5% on an SEIS investment. > > [Jamie Williams](https://uk.linkedin.com/in/jamie-williams-1392a456?) > Tax Director, > > [Cadre Advisory](https://www.cadreadvisory.co.uk/) ## How to qualify for SEIS tax relief There are various rules for both companies and investors. These rules exist to protect the spirit of the scheme – to reward investors for taking a risk on a small, newly established company that’s otherwise unconnected to their own financial interests. ### SEIS rules for investors The first thing is to benefit from SEIS tax relief, you have to be a UK taxpayer. There are several rules in place to keep the scheme working as intended. Essentially: - as an investor, you can’t be an employee or substantial stakeholder (over 30%) in the company. - your investment must represent a genuine risk. That means no agreements to swap investments for the tax relief or other tax avoidance practices - there’s a cap to the amount you can invest under the SEIS scheme per year across SEIS eligible companies. It’s £200,000 per investor per tax year. Similarly, companies have a limited amount of SEIS they can allocate: £250,000 over their lifetime. - you must pay for the shares upfront - you have to keep the shares for at least three years from the date the shares are issued and you can’t receive ‘value’ from the company during that time See [SEIS rules for investors](https://seedlegals.com/resources/seis-rules-investors/#seis-rules) for a full explanation of the rules. **What counts as ‘value’** 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](https://www.gov.uk/hmrc-internal-manuals/venture-capital-schemes-manual/vcm36070) ### What companies can you invest in under SEIS? SEIS rewards investors for supporting small, seed-stage startups. To be eligible for SEIS, companies must: - Have been trading for less than 3 years - Employ fewer than 25 people - Have no more than £350,000 in gross assets - Have a permanent establishment in the UK - Not carry out an excluded trade. This includes banking, insurance or property development For full details, see our article for startups on the [SEIS company criteria](https://seedlegals.com/resources/seis/#seis-eligibility-criteria) . **Companies can get pre-approved for SEIS** If you know that you only want to invest in SEIS-eligible startups, look out for companies that have [SEIS Advance Assurance](https://seedlegals.com/start/seis-eis/) . It’s not a guarantee that the company is SEIS-compliant, but it’s extra security that (as long as nothing changes) you’re highly likely to get the SEIS tax benefits. That makes it an important part of your due diligence. ## When can you claim SEIS tax relief? You can claim SEIS tax relief **up to five years** from the 31 January that follows the tax year in which you made the investment. It’s 31 January because that’s the deadline for [Self Assessment tax returns](https://www.gov.uk/self-assessment-tax-returns) . If you don’t use all of your SEIS allowance (£200,000 per year), you **can’t carry forward the SEIS limit** to the next year. But you **can carry back SEIS tax relief** to the previous year, if you haven’t already invested the maximum allowed under the scheme in that year. > The timing of your investment is key. Funds have to be invested before the shares are issued or on the same day. If funds aren’t received by the date the shares are issued, this is a disqualifying event for the scheme and you’ll lose the relief. > > Funds can be invested before the share issue, but the gap should be minimal (unless you’re investing via an advanced subscription agreement). If the gap is too long, you risk the funds being deemed a loan which is another disqualifying event, meaning you’ll lose the relief. > > [Jamie Williams](https://uk.linkedin.com/in/jamie-williams-1392a456?) > Tax Director, > > [Cadre Advisory](https://www.cadreadvisory.co.uk/) **Important**: for personalised guidance tailored to your specific circumstances, make sure to consult a qualified tax professional. ## How to claim SEIS tax relief ### The investee company completes the SEIS compliance process So, you’ve found SEIS-eligible companies, checked they have [SEIS Advance Assurance](https://seedlegals.com/start/seis-eis/) , completed the negotiations, and invested. What happens next? How do you actually get the tax relief you were promised? **SeedLegals speeds up SEIS** We work with investee companies to sort their [SEIS Advance Assurance](https://seedlegals.com/start/seis-eis/) and [SEIS Compliance](https://seedlegals.com/raise/seis-eis-compliance/) . We manage more SEIS AA applications than any other provider with a success rate of over 90%. ### **1. The investee company fills in a compliance statement (SEIS1 form)** There are rules about when the company can complete the compliance steps. HMRC accepts compliance statements after the company has carried out their qualifying business activity for at least four months **or** spent at least 70% of the SEIS amount raised. ### **2. HMRC sends back two confirmation documents for the company to pass on to investors (SEIS2 and SEIS3)** Typically, HMRC reviews the company’s compliance application in about 15 to 45 working days. To approve SEIS-qualifying status, HMRC sends the investee company two documents: - **SEIS2** – this is a letter containing the Unique Investment Reference (UIR) number for this share issue. The company needs to tell you their UIR so you can claim tax relief as an investor. - **SEIS3** – this is a blank SEIS compliance certificate. The company fills it in for each of their investors (with the UIR) and sends it to you. The SEIS3 is proof that your investment is eligible for SEIS tax relief. ### You claim tax relief through your annual Self Assessment tax return As an investor, you claim your SEIS tax relief when you fill in your annual [Self Assessment tax return](https://www.gov.uk/self-assessment-tax-returns) . On the Additional Information page, under ‘Other tax reliefs’, enter the total you’ve invested in companies under SEIS (and any other Venture Capital Scheme you’re applying for). Remember that you have five years to claim SEIS tax relief, and that there’s some flexibility to carry back tax relief to the previous year. ## How to claim SEIS loss relief If things don’t go as planned and you make a loss on your investment, you can claim loss relief. Loss relief allows you to offset a loss, minus any income tax relief you’ve already had from HMRC, against your income. If you’re claiming the loss for the current tax year, you can contact HMRC to request a change to your PAYE tax code or make an adjustment to your Self Assessment tax payments. If you’re claiming the loss for the previous tax year, make the claim on your Self Assessment tax return. See full details on how to claim SEIS/EIS loss relief at the [gov.uk website](https://www.gov.uk/guidance/venture-capital-schemes-tax-relief-for-investors#how-to-claim-relief) . ### When can you claim SEIS loss relief? When the company isn’t profitable and isn’t able to raise more, founders broadly have three choices: to sell, to go into zombie mode (reduce burn to zero, meaning no productivity or revenue) or to shut down. The route they take affects whether you can claim loss relief. #### **Option 1: the company is sold** **Is loss relief available?** - Yes, you can claim loss relief if you receive less for your shares than you paid for them. - BUT… note that if the company is sold within 3 years of your investment, you may lose some or all of the original SEIS/EIS tax deduction but will be able to claim loss relief when selling shares at a loss, as explained [in this example](https://www.gov.uk/government/publications/enterprise-investment-scheme-and-capital-gains-tax-hs297-self-assessment-helpsheet/hs297-capital-gains-tax-and-enterprise-investment-scheme-2024) on the HMRC site. **Conditions:** - As an SEIS/EIS investor, you’ll qualify for loss relief if you sell your shares at a lower price than you paid. - The loss relief depends on what Income Tax relief you received when you bought the shares and whether HMRC has withdrawn any of your Income Tax relief. - There’s no minimum or maximum time that you must have held your shares. #### **Option 2: the company goes into zombie mode** **Is loss relief available?** - No, because you’re still holding on to your shares, nothing has been sold. - BUT… you may be able to make a [negligible value claim](https://www.gov.uk/government/publications/negligible-value-claims-and-income-tax-losses-on-disposals-of-shares-you-have-subscribed-for-in-qualifying-trading-companies-hs286-self-assessment-he/hs286-negligible-value-claims-and-income-tax-losses-on-disposals-of-shares-you-have-subscribed-for-in-qualifying-trading-companies-2021) and be able to claim a loss, even if you’re still holding your shares. #### **Option 3: the company shuts down (voluntary liquidation)** **Is loss relief available?** - Yes **Conditions:** - As an SEIS/EIS investor, you might be eligible for loss relief if the company is voluntarily wound up for genuine commercial reasons. - The loss relief depends on what Income Tax relief you received when you bought the shares and whether HMRC has withdrawn any of your Income Tax relief. - There’s no minimum or maximum time that you must have held your shares. Take a look at this video to hear from SeedLegals co-founder and CEO, [Anthony Rose](https://seedlegals.com/resources/author/anthony/) , how each of these three strategies affects your loss relief as an SEIS/EIS investor and when you’ll be able to claim. ## How do SEIS funds work? If you don’t want to manage the investment process yourself, you can still benefit from SEIS tax relief by investing in an [SEIS fund](https://seedlegals.com/resources/most-active-seis-investment-funds-in-the-uk/) . SEIS funds pool money from investors to spread across a portfolio of SEIS-eligible companies. The fund is responsible for due diligence and making sure that the companies in the portfolio qualify for SEIS. > Choosing between investing in an SEIS fund or directly as an angel investor involves trade-offs. SEIS funds offer diversification and professional management, while operating as an angel means you get more control over your investment and the full benefit of any potential return. > > [Jonny Seaman](https://seedlegals.com/resources/author/jonny-seaman/) > Investor Partnerships Manager, > > [SeedLegals](https://seedlegals.com/) > > - [https://www.linkedin.com/in/jonnyseaman/](https://www.linkedin.com/in/jonnyseaman/) ## SeedLegals for Investors: the smart way to run your deals Manage your deals on [invest.seedlegals.com](https://invest.seedlegals.com/) , the dedicated portal for angels and funds who’ve invested in startup companies. Log in to [see all your deals, view the total value](https://seedlegals.com/investors/exit-modelling/) of your investments, model exit scenarios, [send out Term Sheets, negotiate directly](https://seedlegals.com/investors/deal-manager/) on the document through comments, [store your SEIS3 and share certificates](https://seedlegals.com/investors/investor-seis/) . To find out more about how we can help you streamline and manage your deals, choose a time for a friendly call with our investor team. Free course: Become an angel investor 1 week. Under 10 minutes a day. Video lessons delivered by email. Created by industry experts. ## Related posts [3 min readThe SeedLegals Qualified badge: the faster way to identify investment-ready startupsHave you seen the SeedLegals Qualified badge on some of the pitches that come across your screen? Here’s what the badge ... 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