The Seed Enterprise Investment Scheme (SEIS) is a piece of government legislation that was designed to help kick start the British economic resurgence following the global financial crisis of 2009.
One of the key principles of a nation’s economic growth is entrepreneurship and enterprise, and yet as British banks cautiously tightened the purse strings, it was new businesses and entrepreneurs that would suffer the most.
Seed investment is one of, if not the riskiest avenue for investment in existence, and while returns on a successful early stage startup can be life changing, the statistics suggest that the odds are stacked against that being the case.
As a result, investors are often discouraged by financial advisers from placing funds into an early stage startup venture, and once the banks decided they would no longer offer their support to the sector, there was a huge chasm left and no new businesses left to fill it.
The Seed Enterprise Investment Scheme was finally introduced by George Osborne in 2011 to boost the appeal of early stage investment, by offering very attractive tax benefits in exchange for funding of the UK’s startups. With the scheme, would come a new dawn of entrepreneurship, of economic growth and positivity, or at least that was the objective.
But there does still appear to be a huge obstacle in the way of SEIS, and that is the lack of awareness of its existence. The most recent figures released by HMRC are from 2013/14, the second full year of its existence, and it shows that only around 2,000 companies used the scheme to source investment, with a total of £164 million being raised at an average of £82,000 per company.
In its first year SEIS raised £86 million, so funding levels have increased, but the benefits of SEIS are so significant to such a large percentage of UK residents, it’s surprising that EIS is currently raisin
g over a billion a year, whereas it’s younger more attractive sister is hardly known about. More needs to be done to raise the profile, an here’s why:
The Benefits for Investors
The tax relief model applied to the Seed Enterprise Investment Scheme is widely regarded as the most generous in Europe, perhaps even the world. It is almost certain that no British government would extend the same level of generosity at any time in the future, regardless of how keen they were to source funding for bright young startups.
Income tax relief is granted at a level of 45% of the overall annual investment. The maximum overall investment (which can be placed into any number of qualifying startups) is £100,000. So assuming you invested the maximum, immediately you will receive £45,000 back in tax relief on income.
Capital Gains Relief
This is at 100% for any investment through the scheme. If you decide to sell your shares in the business after the waiting period of three years, there will be no CGT on any gains you’ve made.
CGT Reinvestment Relief
If you are enjoying the 45% Income Tax relief you’re getting from the scheme, you may be interested to know that if you have previous investments external from the scheme, and you cash these in to place into an attractive company within SEIS qualification, you will get a 50% CGT reduction on any gains.
Inheritance Tax Relief
Two years from the date of purchase, 100% Inheritance Tax is granted on any shares held in an SEIS investment.
And finally, if the investment fails, the government offer the opportunity to offset part of the loss against tax on other income.
All in all, the risk factor is cut down by, in some cases, verging on 100%, which when you consider that investors are only usually likely to place funds inside an enterprise they believe has a great chance for success, means that SEIS should be far more popular than it already is. As more people become aware of the scheme, more investment will undoubtedly come through SEIS, and with the UK’s exciting tech scene seemingly going from strength to strength in London and with the Tech North initiative, the future for the startup sector in the UK looks to be extremely fruitful.
For more information on SEIS, as an investor or an entrepreneur, visit SEIS.co.uk