Recognising the difficulties that new and early-stage companies experience in raising the funding they require to expand, SEIS offers generous tax relief to investors ready to put their faith and money into these profitable businesses.
And while there are several online articles about SEIS, they primarily focus on explaining the tax benefits that founders can qualify for this programme.
This article explains more about SEIS and the benefits of being a SEIS investor.
Who might consider SEIS
SEIS is an excellent scheme for investors willing to take on more risk in exchange for a higher return. It could also be particularly appealing to investors looking for growth prospects with a large income tax bill.
SEIS eligible companies have higher risks than any other investments since these companies have less traction than those already established and have been trading for multiple years.
Still, always conduct your research and due diligence. Ensure the firm is in an industry you’re familiar with, understand well, or have previously invested in.
Also, only invest in what you can afford to lose.
Calculate this by looking at 1% to 5% of your net worth. Determine how much you could lose within this range, given your present financial situation.
The significance of developing a well-thought-out, meticulously developed investing strategy cannot be emphasised. Make sure you understand and evaluate everything before investing.
Benefits Startup Investors Get From SEIS
1. Income Tax Relief
The cost of your investment can immediately be reduced by 50% by claiming tax relief on the income tax you have paid, providing:
- You’re not associated with the company, which means not owning (or have owned in the past two years) 30%, or you’re not an employee of the company.
- You must hold the shares for three years from the date of issue or from the commencement of trading.
- You have paid enough income tax against which to claim tax relief. You can combine income tax paid in the current and previous year and claim relief below or up to this amount.
There is no minimum investment per company; the maximum you can obtain income tax relief in any given year is £100,000.
2. Capital Gains Tax
Providing shares are held for a minimum of 3 years (from the date of issue or commencement of trading), then no Capital Gains Tax (CGT) is payable.
Shares can be held for longer, so if the company you have invested in is doing well and continues to grow, your CGT free gain may accrue over a longer period.
3. Capital Gains Tax Reinvestment Relief
When you dispose of or sell an asset and make a gain, you usually pay Capital Gains Tax for the tax year. Reinvestment relief allows you who has disposed of an asset that would result in a chargeable gain to treat up to 50% of the gain as exempt from Capital Gains Tax if you’ve reinvested all or part of the gain in qualified SEIS shares.
If you receive SEIS Income Tax Relief on the purchase of shares, you can also claim reinvestment relief. Reinvestment relief is only available if you also get SEIS Income Tax Relief.
To achieve full reinvestment relief, you must invest at least as much in eligible SEIS shares as the chargeable gain. Reinvestment relief is also limit to half of the amount you can invest if you invest less.
4. SEIS Loss Relief
SEIS offers loss relief. If you buy shares in a SEIS-eligible company and the shares are sold at a loss, loss relief allows you to offset the loss against your income tax or capital gains tax bill.
To calculate loss relief, subtract what you collected in tax relief from the amount you invested. Loss relief will not undo all the damage, but it will soften the blow depending on your tax bracket.
5. Inheritance Tax Relief
Inheritance tax is a tax on a deceased person’s estate (their property, assets, and money).
If an investment in a SEIS-qualifying company is keep for two years and at the time of death. It’s eligible for 100% inheritance tax relief.
The amount you pay is based on the value of your estate, which can calculate based on your assets (cash in the bank, investments, property or businesses, vehicles, life insurance policies) minus any debts and liabilities.
Carryback allows all or part of the cost of shares purchased in one tax year to be regarded as if they were purchased in the previous tax year. The earlier year’s SEIS rate can apply to the shares, and relief is given for the earlier year.
7. Tax-free growth
You usually pay no Capital Gains Tax when receiving SEIS shares if you have claimed Income Tax Relief and the companies are still eligible.
The UK government created SEIS to help new startups and businesses find investors while aslo providing the best tax benefits.
If you’re interested in investing in the scheme, you can give us a call or schedule an appointment with us.
We specialise in SEIS, bringing angel investors and startup founders together to form strategic partnerships that produce profit and growth.
We have over 30 years of business expertise and a network of inventive entrepreneurs. And investors, allowing us to recognise upcoming prospects before they reach the public.