Seed  Enterprise Investment Scheme

This scheme, initiated by the government in the 2012/13 tax year, was introduced to complement and build upon the success of the EIS.

The primary objective of the SEIS is to assist smaller, often newer businesses in raising funds and fostering growth. Similar to the EIS, investing in a company that qualifies for SEIS can result in substantial tax breaks.

However, due to the inherently riskier nature of these firms, there are two notable distinctions:

• The income tax relief offered by SEIS is more generous compared to EIS.
• Unlike EIS, SEIS does not defer capital gains; instead, it allows investors to halve the capital gains tax owed.

SEIS eligible companies must meet specific criteria: they must be less than three years old, have fewer than 25 employees, possess gross assets of less than £350,000, and cannot receive more than £250,000 in funding through the SEIS.

Similar to EIS, certain companies and sectors are excluded, such as those involved in land, commodities, or shares.

While the list of exclusions is extensive, it still offers ample investment opportunities. In recent years, app development, music, and film production companies have been popular choices for investment.

SEIS investments offer a combination of upfront and ongoing tax reliefs, including:

• Up to 50% income tax relief
• Tax-free growth
• Up to 50% capital gains reinvestment relief
• Inheritance tax relief
• Loss relief on exit

It’s important to note that tax rules can change, and the benefits depend on individual circumstances. SEIS tax benefits are contingent on the company maintaining its SEIS status.

Income tax relief can be claimed after shares are allotted and you receive your SEIS3 certificate.

SEIS portfolios typically operate on an evergreen basis, with shares allotted at regular intervals. Single company SEIS offers often have a closing date, which is usually either a predetermined date or when the fundraising target is met. Shares are typically allotted shortly after the offer closes.

The date your shares are allotted, not the date you invest, determines the investment date for tax purposes.

SEIS3 certificates are issued after the allotment, once the SEIS company receives confirmation from HMRC that it has met all requirements.

Once you receive your SEIS3 certificate(s), you can claim the tax relief via your tax return. If you’ve already filed your tax return, you can still claim the relief.

A claim for SEIS tax relief can be submitted up to 5 years after the 31st of January following the tax year in which the shares were issued.

The maximum amount you can invest under SEIS is £200,000 per tax year. The minimum investment will vary depending on the fund, but it’s typically around £10,000. Additionally, a ‘carry back’ facility is available.

SEIS investments offer a “carry back” facility, allowing investors to treat shares acquired in one tax year as though they were acquired in the previous tax year. This provides the option to offset the tax relief against income tax from the previous year.

However, this can only be done if you have sufficient SEIS allowance in the tax year to which you’re carrying back.

Similar to EIS, returns from SEIS investments primarily come in the form of capital growth rather than dividends. Target returns vary widely among offers, typically ranging from around 1.3x to over 10x the initial investment. Higher target returns often indicate higher risks.

SEIS fees vary considerably, so it’s crucial to carefully review the fee structure of each SEIS offer document. While individual SEIS companies may not impose explicit charges, administrative and other fees may be deducted as part of business operations. Managed portfolios of SEIS investments usually levy an initial fee of 5-6% and annual fees of 2%, along with a potential performance fee.

It is very easy to make an SEIS investment on the GrowthInvest platform.  Speak to your adviser or visit our offers page.  Here you will find an offer for almost every single SEIS fund available in the market.  Go ahead and read our offer page and learn about the differences in strategy of the various managers.  When you decide what to invest in, contact your adviser or simply click the Invest button on the offer, you and you adviser will receive a digital application form to start the process.

As SEIS shares are not traded on the stock market, they cannot be sold in the same way as investment trusts. Instead, it’s the manager’s responsibility to devise an exit strategy that allows for the return of capital and any tax-free growth to investors.

The manager typically outlines the targeted exit strategy and timeframe, usually around four years, at the outset. However, there are no guarantees and it is quite possible that it could take up to ten years to exit some companies.

SEIS Advance Assurance is a service provided by HMRC, which companies planning to raise money under SEIS may choose to utilize. Although not mandatory, it can offer reassurance.

Receiving Advance Assurance means the company has obtained a letter from HMRC confirming that its proposed share issue would qualify for SEIS tax relief based on the provided information.

However, it’s important to note that Advance Assurance does not guarantee that the company will qualify for SEIS tax relief. This can only be confirmed after the shares are issued.

Regardless of whether the company has received Advance Assurance, it must submit a compliance statement to HMRC after issuing the shares. If all requirements are satisfied, HMRC will confirm the company’s authorization to issue SEIS certificates.

SEIS investments are suitable for experienced or wealthy investors seeking growth opportunities, particularly those with large income tax bills or capital gains tax liabilities.  Speak to your adviser to see if you are deemed suitable for these types of investments.

Both the value and income from investments can fluctuate, potentially resulting in a loss of invested capital.

With SEIS investments, the risk is amplified due to their focus on very small companies. These enterprises are inherently more volatile and prone to failure compared to larger counterparts, meaning investors could potentially lose their entire investment.

As a result, SEIS investments are designed for long-term commitments and may not be suitable for everyone. They are tailored for high-net-worth individuals or sophisticated investors who can tolerate the possibility of a total loss and do not require immediate liquidity.

Furthermore, SEIS investments lack a recognized market for shares, making them less liquid compared to other stock market investments. Selling SEIS shares can be challenging, adding another layer of complexity.

Additionally, to retain all available tax reliefs, investors must hold their investments for a minimum of three years, and the companies must maintain their qualifying status. Failure to meet these criteria could result in the repayment of previously received income tax relief.

It’s important to note that tax laws and product regulations mentioned here are current but subject to change in the future. The benefits of SEIS investments depend on individual circumstances.

Although SEIS, VCTs, and EIS investments target similar types of companies, there are significant disparities among them.

Firstly, variations exist in the tax reliefs offered, maximum investment limits, and minimum holding periods.

Unlike EIS and SEIS, VCTs do not provide a carry back facility. Tax relief from VCTs can only offset the income of the same year in which shares are allotted. Moreover, VCTs do not offer inheritance tax advantages, nor can losses be offset against capital gains from other sources.

Secondly, investing in a VCT involves acquiring shares in the trust rather than the underlying companies. This theoretically allows for the sale of shares at any time, although restrictions may apply.

In contrast, investments in EIS or SEIS funds entail acquiring shares in the underlying companies, which are typically not listed on the stock market. Realizing returns from these investments usually requires an exit event, such as a sale, listing, or refinancing of the company.

Thirdly, unlike EIS investments, VCTs often distribute tax-free dividends, which contribute significantly to investor returns.

SEIS, specifically, focuses on smaller and younger companies, offering greater tax reliefs to compensate for the heightened risks involved.