EIS & SEIS Tax Relief Schemes

Sytrus Accounting EIS & SEIS Tax Relief Schemes

The Government’s Enterprise Investment Scheme and Seed Enterprise Investment Schemes were introduced in 2012 to encourage investment in new start-up companies and early stage businesses.

While they both offer tax relief incentives for investors, the EIS scheme is aimed at driving investment in early-stage businesses while the SEIS scheme is aimed at driving investment in pure start-ups.

There are some differences in the way the schemes work so let’s start with EIS.

The Enterprise Investment Scheme

From an investor’s perspective, the EIS scheme reduces the risk involved in investing in young companies while also offering potentially significant income tax and capital gains reliefs.

From the start-up or early-stage businesses’ point of view, eligibility for the scheme increases the chances of receiving investment as your company will be a less risky choice than one that is not eligible.

What are the EIS Tax Relief Rules for Investors?

For an investor to qualify for the scheme’s tax benefits:

  • They must be a UK taxpayer
  • They cannot be an an employee, partner or paid director of the EIS company
  • They must be buying brand new shares that are not already on the market
  • They can only invest up to a maximum of £1 million in any number of qualifying companies in each tax year
  • They must hold the shares for a minimum of 3 years
  • They cannot carry-forward the EIS tax relief

What Tax Benefits Does the EIS Scheme Offer?

Using the scheme, tax benefits can be received by investors in the following ways:

EIS Income Tax Relief

Up to 30% of the value of your investment can be claimed back in the form of income tax relief.

So, for example, if an investment of £10,000 is made, investors can save £3,000 in income tax.

Sytrus Accounting EIS & SEIS Tax Relief Schemes

EIS Capital Gains Tax Relief- Disposal and Deferral

Disposal Relief: If investors hold the shares for at least 3 years, then all gains that accrue on those shares may be exempt from Capital Gains Tax when they come to sell them. So, for example, if the shares were bought for £10,000 and in 3 years they were worth £30,000, capital gains tax would not have to be paid on the £20,000 gained if they were then sold. 

Deferral Relief: Capital Gains Tax does not have to be paid until a later date if investors dispose of an asset (any asset) and use the gain made on that asset to invest in shares in a company that qualifies for EIS. Capital Gains Tax will usually have to be paid when the EIS shares are disposed of.

EIS Loss Relief

If the business invested in performs poorly and money is lost, the investor may claim loss relief. The loss relief that can be claimed is at the equivalent rate to the highest rate of income tax the investor pays. So, if they pay income tax at a rate of 45%, they can claim up to 45% of the net loss in income tax relief.

Sytrus Accounting EIS & SEIS Tax Relief Schemes

Applying Tax Relief to a Previous Year (Carry-Back)

Some or all of the shares can be treated as being issued in the preceding tax year, as long as the investor had not reached the limit for the value of EIS shares purchased (£1,000,000) in that year.

EIS Inheritance Tax Relief

Investors can generally claim Inheritance Tax relief of 100% after two years of holding the EIS shares. 

This means that any liability for Inheritance Tax is reduced or eliminated in respect of such shares. However, this relief is not available if the shares are listed on a recognised stock exchange.

What are the EIS Rules for Businesses?

  • The company can raise a maximum of £5 million in total in any 12-month period (if more is raised, only up to £5 million worth of shares with be eligible for EIS)
  • The company cannot have more than £15 million of gross assets
  • The company must have fewer than 250 full-time equivalent employees

Seed Enterprise Investment Scheme

The main difference between the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) is that SEIS is focused on earlier-stage (seed stage) companies.

What are the SEIS Tax Relief Rules for Investors?

For an investor to qualify:

  • They must be a UK taxpayer
  • They can invest up to a maximum of £100k in any number of qualifying companies in each tax year
  • They must hold the shares for a minimum of 3 years (shares gifted or sold within 3 years will be subject to relief clawback)
  • They cannot carry-forward their EIS tax relief
Sytrus Accounting EIS & SEIS Tax Relief Schemes

What Tax Benefits Does the SEIS Scheme Offer?

Using the scheme, tax benefits can be received by investors in the following ways:

SEIS Income Tax Relief

If eligible, they can claim back up to 50% of the value of the investment in the form of income tax relief. Therefore, if they make an investment of £10,000, they can save £5,000 in income tax.

SEIS Capital Gains Tax Relief

Disposal Relief: Depending on the investor’s personal circumstances, if they sell the shares after having held them for at least 3 years, then they may be able to pay no Capital Gains Tax on your investment gains.

SEIS Capital Gains Tax Reinvestment Relief

If they choose to reinvest gains from other non-SEIS investments into an SEIS eligible company, they will receive 50% Capital Gains Tax relief on the original investments.

Sytrus Accounting EIS & SEIS Tax Relief Schemes

SEIS Loss Relief

If the business performs poorly and the investor loses money, they may claim loss relief.

The loss relief they can claim is at the equivalent rate to the highest rate of income tax they pay. 

Applying tax relief to a previous year (carry-back)

Investors can treat shares as if they were acquired in the preceding tax year.

SEIS Inheritance Tax Relief

After holding the shares for 2 years, there will no longer be any Inheritance Tax on their value.

What are the SEIS Rules for Businesses?

  • The company can only receive a maximum of £150,000 through SEIS investments in its lifetime
  • The company must not have more than £200,000 of gross assets at the time that the shares are issued
  • The company can only have been trading for up to 2 years
  • The company must have fewer than 25 full-time equivalent employees

How Can We Help?

If you need help understanding whether you can claim investment relief or want to know if S/EIS funding is the right move for you then just get in touch and we’ll help you make the most of your investment potentials.

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