The SEIS was recently introduced by the Finance Act 2012 and applies from the 2012/13 tax year. It was established to encourage investment into smaller companies, including start-ups. As these types of businesses are inherently more riskier than other investments, generous tax reliefs have been made available to investors providing much needed capital to young companies enabling them to grow, via a SEIS.
SEISs can either be a single company or a portfolio of qualifying companies, and investors considering investing in an SEIS should speak with their Financial Adviser to ensure that they understand the risks of investing. It is important to have diversification to spread risk and to know that investing in unquoted companies (whether directly or through a discretionary portfolio) is always considered to be higher risk.
Income tax relief
SEIS investment permits 50% income tax relief on total investments up to £100,000 per person in the tax year. This applies regardless or your marginal tax rate, so even if you’re a basic rate tax payer you get the income tax relief at 50%. (You must however have a tax liability to reduce though).
Other tax benefits
Investors can also obtain exemption for Capital Gains Tax (CGT) liabilities incurred in the 2012/13 tax year, where the gain is invested into qualifying SEIS companies of up to 28%. This is not a deferral of the CGT owing, (as per a feature of the conventional EIS), but a direct tax relief.
Combined tax reliefs thereby can offer investors up to 78% relief through an investment in a SEIS.
Can tax reliefs exceed 100%?
For investors who are a 45% taxpayer, the relief could be 100.5%