Tax benefits make seed enterprise scheme attractive for investors

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The Seed Enterprise Investment Scheme (SEIS) offers very attractive tax benefits to investors, in return for supporting small and start-up businesses in the UK.

The tax reliefs are offered to encourage investors to support SMEs, as helping new businesses can carry financial risks.

The SEIS was designed to boost economic growth in the UK by promoting new enterprise and entrepreneurship.

It has now become one of the most popular Government-backed schemes along with the similar Enterprise Investment Scheme (EIS).

How does the system work?

A new business can obtain up to £150,000 through SEIS investments.

Anyone taking this up needs to follow the SEIS fund rules for at least three years after they have gained investment, to ensure that investors do not meet a tax liability and their investments remain eligible for SEIS tax relief.

These investments are not completely tax-free but there is a lot of tax relief available for the investors involved.

For the investor, there is a maximum investment of £100,000 and there must be an issue of ordinary shares.

In addition, investors cannot hold more than 30 per cent of the shares in the company.

What are the tax reliefs on offer?

Up to 50 per cent income tax relief for investors
Potential of to 50 per cent Capital Gains reinvestment relief
Inheritance Tax relief after two years
Income tax loss relief on exit.

Key Requirements for SIES include that the company must:

Not have been trading for longer than two years
Have gross assets less than £200,000
Have fewer than 25 employees.

In addition, funding raised must be spent on the trade or preparations for the trade or R&D within three years.

Are there limitations for SMEs?

Shares must not be issued before cash investment clears or not long after, preferably on the same day
You cannot qualify if already in receipt of EIS or VCT (Venture Capital Trusts) funding.

For help and advice on SEIS and related investment matter, call our expert team today.