SEIS incentivises investors to place capital into the high-risk startup sector. By offering a selection of generous tax breaks, SEIS allows investors to offset the risk associated with startup investment, while also having involvement in a potentially successful new venture. All tax breaks become active three years from the initial investment.
The tax benefits break down as follows:
Income Tax Relief
SEIS income tax relief currently equates to 45% of the initial investment. There are no exclusions to this tax break and it can also be spread across the current and previous year’s income tax bill. This is called a “carry-back” and it allows the investor to use any surplus income tax relief for the previous year if the current year’s income tax is reduced to zero.
Capital Gains Tax Exemption
If, after the three year investment period, you decide to sell your shares in the SEIS business you’ve invested in, you will be 100% exempt from tax on any gains you have made.
CGT Reinvestment Relief
If you have other investments separate from SEIS, and you decide to cash these in to reinvest in a project that qualifies for the scheme, your capital gains on these initial investments will be subject to a 50% reduction on tax.
If the chosen investment should fail, the government offer loss relief which can be offset against tax on other income. The loss relief is offset at the level of the individual’s highest income tax rate. The amount invested (minus 50% to take into account the income tax relief) is multiplied by the tax rate to work out the amount that can be claimed.
Inheritance Tax Relief
100% Inheritance Tax relief against the value of the shares is granted two years after the date of the initial purchase.