What is SEIS?
Read our guide to the SEED Enterprise Investment Scheme
In response to the need for investment in the UK’s start-up business sector, the Government introduced this scheme to encourage people to invest in seed stage companies. Whilst there are inherent risks in investing in start-ups, the tax reliefs offered are generous. The scheme came into effect from 6 April 2012.
What is SEIS?
The scheme is largely modelled on the long-standing Enterprise Investment Scheme (EIS) but offers enhanced tax reliefs for investment in smaller companies. The objective is to help start-up companies attract investment by offering tax reliefs to investors.
Importantly, tax relief will be available to directors investing in their own companies, subject only to the “30% Test” – they must not hold more than 30% of the ordinary share capital, issued share capital or voting rights in the company.
Additionally, in line with changes to the EIS, shares with preferential rights to dividends will qualify for SEIS relief providing their amount and date of payment is not dependent on a decision by the company, the shareholder or any other person and providing the dividends are not cumulative.
What is SEIS and what are the available tax reliefs?
Providing the shares are held for three years. Income Tax relief is available at 50%, and the scheme offers exemption from Capital Gains Tax on 50% of the investment. The maximum investment qualifying for relief is £100,000.
An example of the reliefs available in 2025/26:-
SEIS cash subscription £100,000
Income tax relief at 50% £(50,000)
CGT re-investment relief at 24% £(12,000)
Net cost of investment £38,000
Inheritance tax relief could add another £40,000 of tax savings.
The claim for the relief may be done in the current tax year or can be carried back 1 year.
Provided a shareholder has owned shares in a qualifying unquoted trading company for at least two years and certain conditions are met at the time of transfer, inheritance tax business property relief of 100% is available on the first £1m, which reduces the inheritance tax liability on the transfer to nil.
Seed Investment Enterprise Companies
There are a number of conditions that a company must fulfil in order to qualify under the Seed Enterprise Investment Scheme. These largely mirror the rules for Enterprise Investment Scheme companies, except that SEIS companies must have:
- fewer than 25 “full-time equivalent” employees;
- gross assets of less than £350,000;
- must carry on a genuine new trade;
- not have raised any money under the EIS or VCT schemes.
SEIS and Enterprise Investment Scheme/VCT Investment
If a company has issued shares to investors under the EIS or VCT schemes, then it cannot issue shares under the SEIS. However, a company which has issued SEIS shares can then go on to raise further investment from EIS and/or VCT investors.
This reflects the intentions behind the scheme – it is aimed at start-upswho need to be able to offer greater incentives to investors in their early growth stages. Once that is past, they should then be able to attract EIS and VCT money. The only requirement is that the company spends 70% of money raised from SEIS investors before it issues EIS/VCT shares.
What is SEIS qualifying trade?
The SEIS is intended to encourage investment in higher risk, trading companies, so a number of types of trade are excluded. As with the EIS, these are:
- Dealing in land, shares, futures and other financial instruments
- Dealing in goods other than in the normal course of a retail or wholesale trade.
- Banking, insurance, money lending or other financial activities.
- Leasing or receiving royalties or license fees, unless the company has created the intangible asset itself.
- Providing legal or accountancy services.
- Farming, market gardening, woodlands and timber production.
- Property development.
- Hotels and nursing homes.
- The subsidised generation or export of electricity
- Coal and steel production, shipbuilding.
- Providing services to a connected party conducting one of the above trades.
- The receipt of Feed-in Tariffs, except for generation by hydro or anaerobic digestion.
What is SEIS genuine new trade?
The Company must carry on a trade which did not commence more than 3 years before the share issue, whether or not it was carried on by the Company or someone else at the outset.
Additionally, the Company cannot carry on any other trade which is more than two years old – you can’t make an established company qualify for SEIS by starting a new trade.
What is SEIS limits on sums raised?
The maximum amount a company can raise from SEIS investment is limited to £250,000, but if the Company has recieved any other “State Aid” such as grants, this may have to be deducted
There is no reason why a company cannot raise more than £250,000 from a share issue, but only £250,000 will qualify under the scheme.
What is SEIS and the 30% test?
SEIS relief is not available to an individual who possesses or is entitled to acquire more than 30% of the issued share capital, ordinary share capital or voting rights of a company or any subsidiary. Holdings of business partners and relatives (excluding siblings) are added together for the 30% test.
This test is a “once and for all” test. An individual who holds or has held more than 30% cannot qualify for SEIS, even if a new share issue dilutes their holding below 30%.
The only exception to this is that an individual is not disqualified if he holds more than 30% at a time when the company has not issued any shares other than subscriber shares, and the company has not begun to trade or make preparations for carrying on any trade or business.
What is SEIS? The risks
Investors considering investing in SEIS Companies must remember that the tax reliefs are only available because investing in this type of business is perceived as high risk. Additionally, shares in unquoted companies can be difficult to sell, should you wish, or need, to liquidate your investment.
How does my company obtain SEIS qualifying status?
Many potential investors will want some form of comfort that their investment will qualify for the SEIS tax reliefs. No guarantees can be given, particularly as the company has to satisfy certain requirements for three years after the share issue. However, it is possible to obtain ‘advance assurance’ from HM Revenue and Customs before offering shares to investors, and many potential investors will insist on this. Advance assurance is not a requirement of the SEIS, and does not guarantee that a share issue will qualify, but it is useful, both in attracting investors and in ironing out any problems before it is too late.
What is SEIS is a question our tax team are asked often. If you would like to speak to a member of our tax team about SEIS and whether your investment qualify, please get in touch, we are waiting to help. You can contact us on 020 7870 9050 or email us ast hello@rpgcc.co.uk.
