Seed enterprise investment scheme – more developments

News: December 2012

Seed enterprise investment scheme – more developments

As we become accustomed to the staggering tax breaks available under SEIS, we learn how and when to use the scheme, either as an investor or as a new business seeking to raise funds.

Ideally, to ensure that the investment is not entirely driven by tax breaks, there needs to be an additional source of motivation. This could include:

  • Wanting to help a niece or nephew starting a business.
  • Knowing the people behind the new business, and trusting their business acumen.
  • A desire to support the particular activity the business is involved in.

The trade must not have been in existence for 2 years or more. To reduce any potential risk, an investor may want to delay investing until after the first year’s results are known. With care this can be achieved, provided that the company has not already raised the maximum permissible amount, which is £150,000.

The income tax relief on an SEIS investment is at a fixed rate of 50%, regardless of the tax rate you are actually paying. Moreover, you can eliminate capital gains tax on a gain made in the current tax year by investing the amount of the gain via SEIS. This means that if you were to lose all your money on the SEIS investment, the actual cost to you is nothing! This is because of the range of the amount of the tax reliefs available.