The SEIS Scheme for Startup investment is a scheme that offers substantial tax benefits to investors. The Seed Enterprise Investment Scheme (SEIS) is intended to help the financial growth in the UK by promoting enterprise and small-scale businesses. Suppose you have started a business and working towards improving it by seeking feedback from early users. This is the time when you might be looking for investors who will be interested in buying your vision. Here the SEIS scheme helps in offering huge tax-efficient benefits to investors in return for their investment in startups.
Introduction to SEIS Scheme
The UK government set up the SEIS scheme back in 2012 to set up an initiative to help startups, small, and seed-stage companies. The sole purpose was to attract investors willing to plunge into a bright idea to do a successful business. This scheme, provided by the government, aims to incentivise investments. This is achieved by offering tax relief to investors willing to invest in such enterprises.
The idea behind launching this scheme was to stimulate economic growth and encourage entrepreneurship. This scheme had been successful in accomplishing its aims. Over time the Seed Enterprise Investment Scheme set itself up as the UK government’s most respected plans ever created.
What are the Advantages of the SEIS scheme for companies and investors?
The primary advantage of the SEIS scheme for companies is its power to raise funds that would are otherwise difficult to secure as a small startup business. If one is eligible, they can grow to £ 150,000 under this scheme. Also, under SEIS, startups can use the money to repay any third-party loans. But they need to make sure that the loan must not be linked to the SEIS investor. One condition to repay the loan is that startups must have taken it out for trade only.
An investor can invest up to £100,000 per annum under the SEIS scheme. The only condition is that they cannot be a company employee. Also, certain family members would not claim the SEIS benefits if they are ‘associates’. The associates include civil partners, spouses, children and parents. The investor should not hold more than 30% of the startup’s overall shares. Investors are also barred from liquidation preference.
Benefits for which SEIS investors qualify
The main benefit for the investors is that they can hold upfront tax relief on up to 50% of the amount invested, £100,000 per annum. To preserve this income tax relief, investors must hold the shares for three years. They are eligible to get Captain Gains Tax relief of 50% on investment in a non-SEIS company.
If a chosen investment fails, the investor can get loss relief which cancels the loss made during the investment against tax. Investors benefit from a 10% relief on Inheritance tax on SEIS shares. The only condition here is that they must hold those shares for at least two years. The tax relief could be carried back to the previous year only if the investors had not already invested the maximum amount of £100,000 under SEIS in that particular year.
IF your company qualifies for SEIS funding, you have to convince investors to fund your enterprise. The investors need some proof that their investments will be eligible for the SEIS tax relief. For that purpose, the HMRC has created an Advance Assurance facility that eases the process for both investors and entrepreneurs with its SEIS compliant certification.