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Seis Tax Relief
Investor Hub Published:  Jun 30, 2023 7 min read
Expert reviewed

SEIS tax relief: guide for investors

Get in at the ground floor of the next tech unicorn, cash in big at exit. That’s the ideal scenario. But the less established a company is, the less information you have to guide your decision to invest or not.

Luckily, the UK government sweetens the deal for investors who help risky, early-stage companies off the ground. HMRC’s Seed Enterprise Investment Scheme (SEIS) offsets some of the unknowns by giving investors generous tax relief.

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How does SEIS tax relief work?

SEIS is just one of the UK government’s venture capital schemes that incentivise private independent investment into younger companies.

Through forms of tax relief, these schemes encourage investors to support early-stage startups. These startups tend to carry more risk than traditional investments like property and the stock market, but will go on to innovate, create jobs and grow the economy – all things the UK government is keen to promote. As a reward, the UK offers very appealing tax incentives to help lower the risk involved in startup investing.

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 at the same time.

Because SEIS is designed to support small, seed-stage businesses – aka, the very riskiest ones – it offers some of the most generous perks to investors of all the venture capital schemes.

Seis Benefits Investors

SEIS and Income Tax relief

Under SEIS, you get 50% back 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. When you file your tax return, 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

When you come to sell your shares, usually you’d pay Capital Gains Tax on the profit you make. With SEIS, you get to keep it all, paying 0% CGT tax no matter how small or large the eventual exit.

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 to 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.

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%)
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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

Investor Partnerships Manager,

SeedLegals

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

Seis Tax Relief example, what happens when your shares grow in value
Seis Tax Relief Example, what happens if your shares lose value
Jamie Williams Cadre Advisory

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

Tax Director,

Cadre Advisory

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.

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.

Jamie Williams Cadre Advisory

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.

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Tax Director,

Cadre Advisory

Important: For personalised guidance tailored to your specific circumstances, make sure to consult a qualified tax professional.

How to qualify for SEIS tax relief

To benefit from SEIS tax relief, you have to be a UK taxpayer.

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 investor can’t be an employee or substantial stakeholder (over 30%) in the company.
  • the investment must represent a genuine risk to the investor. 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 box below)

See SEIS rules for investors 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
Seis Rules For Investors

What companies can you invest in under SEIS?

SEIS rewards investors for supporting small, seed-stage startups.

To meet SEIS status, 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.

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.

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.

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, 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 and SEIS Compliance. We manage more SEIS AA applications than any other provider, and that expertise is reflected in our 98% success rate (the industry average is only 63%).

 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 the 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.

Investors, claim tax relief through your annual self assessment tax return

Claim your SEIS tax relief when you fill in your annual self assessment tax return. 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 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.

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.

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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

Investor Partnerships Manager,

SeedLegals

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