Seeds or (SEIS) is a new form of Enterprise Investment Scheme (SEIS): a new tax relief for start-ups introduced by the Finance Bill 2012.
- Taxpayers who invest up to £100,000 in a qualifying new start-up business will be eligible for income tax relief of 50 per cent.
- Relief is offered regardless of the rate at which the investor pays tax.
- The SEIS applies to investment in companies, and not in unincorporated businesses or LLPs.
- Investment must be in subscription to new shares issued on or after 6 April 2012 until 5 April 2017.
SEIS Reinvestment relief
As an added incentive to encourage more people to back ‘riskier’ companies, a capital gains tax (CGT) break is also offered for investments made into the new scheme:
- Capital gains arising on the disposal of an asset in 2012-13 and invested through the SEIS in the same year will be completely exempt from CGT – this represents up front tax relief of up to 78%.
- Disposals of SEIS shares will also be exempt from CGT after a three year qualifying period.
Investors and companies must meet the following conditions:
- Cannot be an employee of the company: a director is not treated as an employee
- Must not hold more than 30% of the shares, voting power or entitlement to assets in the event of winding up, during the qualifying investment period
- Must not have any related investment or linked loan arrangements in place
- Must subscribe for genuine commercial reasons and not as part of a tax avoidance scheme.
A SEIS company must:
- Have less than 25 employees
- Have gross assets of less than £200,000
- Have been trading for fewer than 2 years
- Not have raised any money from EIS or VCT investors
- Carry on a genuine new trade.
Although the tax breaks are very tempting, we would advise that you proceed with such schemes with caution. Seeds are really only for sophisticated investors. Most clients would be better off considering a normal EIS scheme.
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