The Seed Enterprise Investment Scheme (SEIS) is a government initiative designed to attract more investment in start-up companies and creative ventures. Scheduled to come into force on April 6th 2012, It is that investors will be encouraged investors to use their money to help burgeoning business by investing "SEIS investments".
Start-ups are critical for the economic growth of the country. Business leaders were pleased to see confirmation in the Budget of the availability of the SEIS investment scheme to help entrepreneurs get a start in business.
The EIS (Enterprise Investment Scheme) is similar, but the SEIS investment is specifically targeted at new businesses.
Highlights of SEIS investment
• The business must be less than 2 years old
• It must have fewer than 25 employees
• It must have less than £200,000 of gross assets
• It must not be quoted on any stock market
• The scheme cannot be used to invest in your own company
• Up to £150,000 of funding is available through SEIS
• You must not have already raised money under other schemes, such as EIS
An investor can acquire up to 30% of a business under the SEIS investment scheme. The number and quality of the tax reliefs available are designed to attract investors much like the EIS has.
While the tax benefits of SEIS investments are clear, the task of identifying viable businesses is still the same. The survival rate of new businesses is still a fairly low 65%, so identifying those likely to provide a return remains.
Provided the SEIS investment is held for more than three years, a gain on sale is free from capital gains tax. However, there are restrictions if no claim to income tax relief is made or the shares are sold, or cease to qualify within the three-year period.
Investors can claim back income-tax of 50% of the amount invested up to a maximum of £100,000.
An investor can have a 'capital gains tax holiday'. Capital gains tax (CGT) can be avoided as long as you reinvest the proceeds in a SEIS eligible start-up in the same year.
With the potential for 78% tax relief in the first year, (50% income tax, 28% capital gains tax), SEIS investments are designed to be attractive to potential investors.
Like EIS investments, one of the requirements in order to qualify for SEIS is that investors must buy ordinary shares.
EIS investment has been largely successful since its inception, so it is hoped that SEIS investment gains enough traction to offer real hope to new businesses and the economy at large.