We here at Sapphire Capital Partners can go on at length over the benefits of the Seed Enterprise Investment Schemes ("SEIS").  And we do it for good reason. The benefits to investors are very generous. Currently there are six main tax saving advantages which are offered by the scheme to UK taxpayers who wish to invest in companies which qualify for the SEIS. The tax reliefs are broadly as follows: (1) 50% upfront income tax relief on amount subscribed (2) 100% inheritance tax relief after two years (3) 50% Capital Gains Tax exemption for chargeable gains (4) 100% tax free growth (5) Loss relief and (6) Business Investment Relief.  The following is a brief summary of these six key tax saving benefits:

1)  Income Tax Relief - 50% upfront income tax relief on amount subscribed

Individual tax payers can subscribe for shares and obtain income tax relief at up to 50% on amounts of up to £100,000 in any one income tax year.  This provides a maximum income tax reduction of £50,000 in any one year.  Income tax relief is given in the income tax year in which the investment is made or can be carried back to the prior tax year.

Under current rules an individual may carry back unused income tax relief arising at any time in one income tax year to the previous income tax year of any amount up to the full amount of the subscription.  This is subject only to the overall cap of £100,000 per income tax year. 

SEIS income tax relief will be withdrawn in whole or in part if an individual's shares are not held for three years from the beginning of the SEIS qualifying period, or if the individual is or becomes "connected" with the SEIS qualifying company in which an investment is made during the period beginning two years before and ending three years after the date of investment in the SEIS qualifying company.  There are other circumstances in which income tax relief could be withdrawn which have not been detailed here.  (For further information on this please contact us directly).

2) Inheritance Tax Relief 

The shares held by investors should, in most cases, qualify for 100% of inheritance tax business property relief in the event of the death of an investor or any other chargeable transfer as long as the shares have been held for two years from the date they were issued to the investor.

3)  Exemption from Capital Gains Tax 

There is 50% capital gains tax exemption for chargeable gains (up to the maximum subscribed) in an SEIS qualifying company provided that the shares are held for at least three years from the date of the investment (or from the date of commencement of the SEIS qualifying company's trade, if later) and are investments in respect of which income tax relief had been obtained and not subsequently withdrawn.

4) Tax Free Growth

All growth in the investment made by the investor is tax free. Therefore, for example, if an investor invests £50,000 and sells their shares four years later for £80,000 - the gain of £30,000 is completely tax free.

5)  Loss Relief 

Any capital losses realised in respect of a qualifying investment in an SEIS qualifying company (net of income tax relief attributable to the investment) qualify for loss relief so that the capital loss can be set off against capital gains of that tax year or a later tax year or against total income of that tax year or total income of the preceding tax year.

6)  Business Investment Relief Available for Certain UK Resident Non-Domiciled Investors

Under this relief, the UK Government is effectively giving non-doms a subsidy of 50% on their investments. Before 6 April 2012, if one had brought £50,000 into the UK to make an investment (and is a 50% tax payer) then the amount they could have invested was circa £25,000.  This would obviously discourage a non-dom from bringing money into the UK.  Now if a non-dom brings £50,000 into the UK to invest - they can invest the full £50,000. But wait - it gets better - you can also use the other reliefs when making an investment using offshore monies remitted to the UK - such as EIS or SEIS - which will also potentially save you up to 50% on your income tax bill (30% for EIS and 50% for SEIS). See our full article on business investment relief.

We believe that the benefits the Seed Enterprise Investment Scheme offers are so attractive to investment that all start ups should consider applying to obtain the status.  It should be no wonder why we are so passionate about promoting this scheme.