Exploring the Tax Advantages of SEIS and EIS Investments

What are SEIS and EIS schemes?

SEIS (Seed Enterprise Investment Scheme) and EIS (Enterprise Investment Scheme) are UK government initiatives designed to encourage investment in small and early-stage businesses by offering significant tax incentives to investors. These schemes aim to stimulate economic growth by providing funding to businesses that might otherwise struggle to secure financing through traditional means.

What are the main tax advantages of investing in SEIS and EIS schemes?

Investors in SEIS and EIS schemes can benefit from a range of tax reliefs, including:

• Income Tax Relief: Investors can claim income tax relief on their investments, allowing them to offset a percentage of their investment against their income tax liability for the tax year in which the investment is made and/or the previous tax year. The income tax relief available is 50% of the investment under SEIS and 30% of the investment under EIS.
• Capital Gains Tax Relief: Capital gains made on the disposal of investments held for a certain period of time (typically three years for SEIS and three or more for EIS) are usually exempt from capital gains tax.
• Additional Capital Gains Tax relief: Under SEIS, 50% of the investment can be offset against capital gains to reduce a Capital Gains Tax liability.
• Capital Gains Deferral Relief: Under EIS the amount invested can reduce capital gains made during a 4 year period, though note that when the EIS shares are disposed of the amount deferred will revive in the year of disposal. At this point, the effect of the “revived” gain can be mitigated by further EIS investment.
• Loss Relief: In the event that the investment does not perform as expected and results in a loss, investors may be able to claim loss relief against their income tax or capital gains tax liability.

Who is eligible to invest in SEIS and EIS schemes?

SEIS and EIS schemes are primarily targeted at high-net-worth individuals who are willing to invest in early-stage, high-risk businesses. To be eligible to invest, individuals must meet certain criteria, including being UK taxpayers and not being connected to the company in which they are investing.

What types of businesses are eligible for SEIS and EIS investment?

SEIS and EIS schemes are designed to support small, unquoted companies that are considered to be high-risk investments. Eligible businesses must meet certain criteria, including:

• Being incorporated in the UK or European Economic Area (EEA)
• Having a permanent establishment in the UK
• Employing fewer than 250 employees
• Having gross assets of no more than £15 million before the investment (for SEIS) or £15 million after the investment (for EIS)
• Operating in a qualifying trade, which excludes certain industries such as banking, property development, and legal or financial services

What are the risks associated with investing in SEIS and EIS schemes?

While SEIS and EIS schemes offer attractive tax incentives, it’s important to remember that investing in early-stage businesses carries inherent risks. These risks may include:

• Business Failure: Many early-stage businesses fail to become profitable, and investors risk losing some or all of their capital.
• Illiquidity: Investments in SEIS and EIS schemes are typically illiquid, meaning that it may be difficult to sell shares and realise a return on investment.
• Lack of Diversification: Investing in a single early-stage business can lack diversification, increasing the potential impact of poor performance on overall investment returns.

How can Haggards Crowther assist with investing in SEIS and EIS schemes?

Haggards Crowther is a London-based firm of chartered accountants and tax advisers with extensive experience in advising high net worth individuals on tax-efficient investments, including SEIS and EIS schemes. Our expert team of accountants and tax advisers can provide tailored tax advice and guidance to help you navigate the complexities of these schemes, maximise your tax savings, and make informed investment decisions.

How can I learn more about SEIS and EIS schemes and their potential benefits?

For more information about SEIS and EIS schemes and how they could benefit you as a high-net-worth investor, please contact Haggards Crowther directly to speak with one of our knowledgeable tax advisers. We’re here to help you navigate the complexities of these schemes and make informed investment decisions that support your financial goals.

Hamid Mahmood ACMA CGMA

Hamid has a wealth of experience advising owner-managed businesses across a wide range of issues, including the sale of businesses, value generation for shareholders, and formulating and advising on tax-efficient strategies. He’s also a specialist at helping start-up companies reach their full potential through teamwork, strategic thinking, and leadership.

His expertise spans technology, cryptocurrency, property investment, and various service-based industries, offering clients tailored solutions to navigate their unique challenges effectively.