The Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) both provide tax incentives for individual investors to encourage investment in smaller UK companies.
Benefits to investors
- 50% income tax relief on investments up to £100,000 per annum.
- No capital gains tax on the sale of SEIS shares held for 3 years
- Reinvestment relief for SEIS shares sold within three years where the proceeds are reinvested in other SEIS companies
- The value of shares is exempt from Inheritance Tax once held for two years
- 30% income tax relief on investments of up to £1 million per annum.
- Capital gains relief on EIS shares sold if they have been held for the qualifying period and income tax relief has been received.
- Any capital loss on the disposal of EIS shares can be set against income for tax relief in the year they are sold or the previous year.
- The value of shares is exempt from Inheritance Tax once held for two years.
Each of the schemes has qualifying criteria and rules that must be met to make sure that investments are eligible as SEIS or EIS and investors can claim the tax reliefs available on their shares. Shares must be non-redeemable, full-risk ordinary shares that are paid up in full on the issue in cash. There can be no special rights attached to the shares. The company must carry on a qualifying trade and have a permanent establishment in the UK. Companies must be unquoted under both schemes and must have been trading for less than two years under the SEIS rules. There are further qualifying conditions relating to the application of funds by the company.
Benefits to the company
The schemes provide a larger potential pool of external investors for companies looking to commence trading or to grow.
SEIS - a maximum investment limit of £150,000. Any SEIS investment will count towards limits for later investments through other schemes.
EIS - investments of up to £5 million per annum, subject to a lifetime limit of £12m. The investment must be received within 7 years of the company commencing trading.
Advance assurance and compliance
HMRC will confirm that a proposed share issue is likely to qualify, we can assist with this application and the processes that follow to confirm compliance and secure SEIS or EIS status for the share issue.