Seed Enterprise Investment Scheme
In the Chancellor's recent budget he announced that The Seed Enterprise Investment Scheme (SEIS) is to be extended without time limit. The SEIS is an incentive to invest in new small company businesses and allows equity investors to obtain immediate tax relief on their investment.
The relief is available to individuals who subscribe for qualifying shares in a company which meets the SEIS requirements and is available for investments made after 5 April 2012.
Investors benefit from relief on their investment as their tax liability is reduced by 50% of the cost of their shares, up to a maximum of £100,000. The relief can be carried back to the preceding tax year.
Additionally relief from Capital Gains Tax is also available. Reinvestment relief was available for 100% of gains on disposals arising in 2012/13 and reinvested under the scheme in that year. This relief was reduced for gains arising in 2014/15 and is available for half the qualifying reinvested amount. Any gain arising on qualifying SEIS shares will be exempt from Capital Gains Tax.
Further reliefs are available to the investor in the form of Inheritance Tax Business Property relief and possible scope for loss relief against income, should the investment fail.
The shares must be held for a period of three years from the date of issue to avoid the withdrawal of relief and must be fully paid for at the time of issue.
In order to qualify for relief the investor must meet certain conditions. These include the requirement that the investor or his associates must not be employees in the company, within a three year period, although they could be directors. In addition to this the investor or his associates must not own over 30% of the company. Associates include immediate family members but siblings, unmarried couples and parents in law are not excluded and could qualify.
There are also several rules that the company must satisfy in order for the investment to qualify. These include the requirement that the business must have fewer than 25 employees and assets of up to £200,000. There are also requirements to ensure that the monies raised must be spent on qualifying business activities. Excluded activities include dealing in land, farming, financial activities, leasing and property development.
There is significant scope for the start up business to benefit from the scheme as investors will be incentivised and encouraged to invest by the tax reliefs. For the investor, 50% Income Tax relief and the scope to protect gains from Capital Gains Tax, along with possible additional tax reliefs, may mean an increased commercial risk can be taken. Some 'crowdfunding' platforms are also now facilitating SEIS investments, allowing individuals to invest small sums, providing a useful new source of funding for business.
We would urge investors and businesses to take care as the conditions for relief are complicated and it is easy to make mistakes. HMRC have published cautionary notes on their website. If you are planning to raise funds for your business or are an investor looking to benefit from the available tax reliefs, please contact Mairi Drummond for advice on 01573 224391, email email@example.com.
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