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Tax benefits make enterprise schemes attractive for investors.

The Seed Enterprise Investment Scheme (SEIS) offers very attractive tax benefits to investors, in return for supporting small and startup businesses in the UK.

It is closely linked with the Enterprise Investment Scheme (EIS) which can be used by established, larger companies, although SMEs account for the vast majority of companies in this country and are defined as having fewer than 250 employees.

Both schemes offer generous tax breaks and SEIS was designed to boost economic growth in the UK by promoting new enterprise and entrepreneurship.

How does the SEIS system work?

A new business can obtain up to £150,000 through SEIS investments.

Anyone taking this up needs to follow the SEIS fund rules for at least three years after they have gained investment, to ensure that investors do not meet a tax liability and their investments remain eligible for SEIS tax relief.

These investments are not completely tax free but there is a lot of tax relief available for investors.

For the investor there must an issue of “full risk” ordinary shares and a maximum investment limit of £100,000 pa for individuals

In addition, investors cannot hold more than 30 per cent of the shares in the company.

 What are the tax breaks?

  • Up to 50 per cent income tax relief for investors
  • Tax-free growth
  • Potential of to 50 per cent Capital Gains reinvestment relief
  • Inheritance tax relief after two years
  • Income tax loss relief on exit

Key Requirements for SIES include that the company must not have been trading for longer than two years;  must have gross assets less than £200,000 and less than 25 employees.

How is EIS different?

Under EIS, up to £5 million can be raised every year, up to a maximum of £12 million over the lifetime of a company and there is a 30 per cent income tax relief for the investor (current or prior tax year).

Rules for investors

  • Like SEIS, there must an issue of full risk ordinary shares
  • An investor cannot hold more than 30 per cent of the shares in the company
  • They should have a maximum investment limit of £1 million per annum for individuals
  • They cannot have been connected with the company prior to the issue of shares

Rules for the company

  • £5 million is the investment limit
  • The company must have fewer than 250 staff and gross assets less than £15 million.
  • Funding must be spent on the trade or preparations for the trade or R&D within two years
  • There is a three-year qualifying period in which strict conditions must be complied with

You must follow the scheme rules or tax reliefs may be withheld or withdrawn from your investors.

Need help with SEIS, EIS and related investment matters? Then call our team today.

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