Navigating the SEIS Hurdles

When considering SEIS (Seed Enterprise Investment Scheme) as a tax efficient investment vehicle, its important to consider all the circumstances around the potential investment along with your own tax affairs.

SEIS has been created as one measure to ‘kick-start’ the economy by giving start-ups additional options when raising finance. Start-ups that my have struggled to raise finance may find that SEIS opens up a few more options.

The legislation around SEIS is lengthy and formal tax advice should be sought before considering an SEIS investment but the key points to note are:

Restrictions

Its a similar scheme (think baby brother) to EIS
It applies to new businesses only (the company needs to have been incorporated less than two years before the issuance of the SEIS shares)
Your stake has to remain below 30% – this is true for the life of the investment (3 yrs +) and applies to not just your share capital but your overall control of the company at any point in time. So if you’ve got enhanced voting rights or loans over the company which in the event of a winding up could give you more than 30% you lose your income tax relief and consequently your capital gains tax relief.
SEIS share will have to be issued post 6th April 2012.
The company cannot have assets of more than £200k or more than 25 employees at the time of investment.
Investors can only get income tax relief once 70% of the money has been spent.
Investors can only invest £100k per year.
Companies can only issue £150k of shares over the life of the scheme.
The investor cannot be an employee (unless they’re a director) nor associate of an employee since the company was incorporated until at least 3 years after the share issuance date.
The company needs to be in a qualifying trade which is the same as EIS and amongst others excludes: legal, accountancy, farming, property development, commodities or futures.
The qualifying trade needs to be a genuine new venture.
The company cannot raise funds under and EIS or VCT until at least 75% of the funds have been spent.

Benefits

You get a CGT holiday in 2012/13 meaning if you sell some assets in that tax period and reinvest the gains in an SEIS investment, you don’t just defer your gain, you never have to pay tax on that gain. You only get the holiday on the portion you reinvest and you can only reinvest up to the maximum SEIS limit.
Income tax relief at 50% irrespective of your income tax rate. Simplistically, if you earn £100k p/a you pay around £30k in tax. So if you invested £50k in SEIS shares you could knock £25k off your tax bill. You only get relief to the maximum amount of income tax you’ve paid though.
All gains are CGT free (subject to the status not being lost by breaching any of the above restrictions)

As can be seen from the list there are a few hurdles and any decision to subscribe for shares under SEIS should be done so having sought professional tax advice.

If you have any queries on the above information or would like to have an informal chat about how My Own FD can help you or if you require an interim or part time finance director, please contact us for a no obligation chat.

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