The tax benefits for the Seed EIS scheme are the most generous of any offered by the Government. There is a wide understanding that investing in start-up companies is risky. A number are likely to fail. The generous tax reliefs offered are designed to compensate for the level of risk involved, and include the following:
Income Tax Relief
Investors can claim up to 50% SEIS Income Tax Relief on subscriptions against income tax paid on total investments up to £100,000. Income tax relief on EIS investment is at 30%.
CGT Investment Relief
Investors, who are residents of UK, can obtain an exemption for CGT liabilities of 50% of the investment. This allows them to obtain further CGT relief of up to 14%. Therefore, the SEIS Income Tax Relief and CGT Reinvestment Relief combine to give a 64% in tax reliefs.
CGT Exempt Disposal
Capital Gains (profits) are tax free provided that:
- The shares are held in a Qualifying company for a minimum period of three years post issue.
- The SEIS Income Tax Relief has not been withdrawn.
Inheritance Tax Relief
100% IHT Relief may be claimed on an Investor’s estate in most circumstances once Qualifying Shares have been held for two years.
SEIS Loss Relief
Under circumstances where the shares an investor possesses in an Investee Company are sold at a loss (or in the event the investment fails completely), there are provisions to offset those losses against the income tax or CGT. Thus would however depend on the individual Investors’ circumstances and the overall limits as to how much can be offset. For top-rate taxpayers loss relief is 45% on their 'actual' investment (the original amount less the 50% income tax relief) which would be 22.5% of the total.
Carry Back Facility
The carry back facility in SEIS serves to extend the period for which CGT and / or income taxinvestment relief can be accessed. E.g. Investments made in the 2017/18 tax year can be ‘carried-back’ and applied to liabilities occurred in the previous 2016/17 tax year.