EIS and SEIS
Equity crowdfunding and investing in start-ups, early stage businesses, bonds, loans, debentures and other investments through crowdfunding platforms is High Risk and should only be considered as part of a diversified portfolio. Investors may lose all capital invested. Tax benefits depend on personal circumstances, are not guaranteed and are subject to change in the future. The crowdfunding opportunities on this site are for qualified investors who understand the risks of investing. Risk Warnings should be read by all investors prior to investing. Click here for our full risk warning.
Tax Relief for investors
A large number of start-ups are beginning to make use of the tax incentives offered by the HMRC, the most recent of which is SEIS tax relief (Seed Enterprise Investment Scheme). If a start up has received SEIS approval (best to check documentation for this with any entrepreneur claiming to be able to offer SEIS tax relief before investing) an investor stands to get up to 64% of their investment back through off-setting it against their tax over the last 2 years. SEIS schemes also aim to reduce some of the risk for investors in the event that a start up fails.
SEIS
SEIS provides income tax and capital gains tax reliefs to qualifying investors who subscribe for shares in qualifying companies.
SEIS Tax Benefits
- Investors can obtain 50% relief for income tax on the cost of shares, on a maximum annual investment of £100,000 (assuming the investor has sufficient income tax liability)
- No Capital Gains Tax on profits from shares held for more than three years, annual limit of £100,000
- If the company goes bankrupt, investors may claim loss relief on their investment which is equal to half of their total investment multiplied by their tax rate.
- 100% Inheritance Tax relief (provided the investments have been held for at least 2 years at time of death).
Qualifying shares must be issued for cash and be held for more than 3 years.
Qualifying for SEIS
The company
- cannot raise more than £150,000 in total through SEIS
- have less than 25 employees in total
- have assets of less than £200,000 before share issue
- incorporated for less than 2 years prior to issuing the shares
- cannot operate in a trade / industry outside of the HMRC SEIS / EIS permitted list
The investor
- cannot be an employee prior to the share issue, unless also a director
- cannot hold more than 30% of shares
If you are looking to raise finance using SEIS you should apply for advanced assurance to the Small Companies Enterprise Centre (SCEC), a branch of the HMRC. You can also call them for advice on 03000 588907
EIS
Investment in unlisted companies often carries a high risk. EIS can offer some compensation for that risk through income tax and capital gains tax reliefs to investors who subscribe for shares in qualifying companies, and qualify personally for the relief.
EIS Tax Benefits
- 30% upfront Income Tax relief up to maximum investment of £1 million, which can be carried back to the previous tax year (assuming the investor has sufficient income tax liability)
- 100% Inheritance Tax relief (provided the investments have been held for at least 2 years at time of death)
- No Capital gains tax after three years
- Deferral of gains realised on a different asset, where disposal of that asset was less than 12 months before the EIS investment or less than 36 months after it
- Tax-free growth
- Tax relief from investment losses
- If EIS shares are disposed of at any time at a loss, such loss can be set against the investor's capital gains or his income in the year of disposal.
Qualifying for EIS
The company
- must not have assets greater than £15 million
- no more than 250 full-time employees
- All capital employed must be engaged in the company within 24 months
- Only qualifying industries
- subject to a decision and audit made by an appointed tax officer
- The company must not be listed
The investor
- The investor may not have more than a 30% interest in the company
- No partner or associate of the investor may have other interests in the company
- No preferential shares
- No controlling interest
- Not used for tax evasion
