SEIS Tax Reliefs

Offering 50% income tax relief on SEIS investments up to £200,000 per tax year (should shares have been held for at least three years), the SEIS's headline level of tax relief is even more considerable than the 30% offered by its sibling scheme - the Enterprise Investment Scheme.

Included to help offset a proportion of the risk commonly attached with investing in startups, this incentive alone can allow investors to claim up to £50,000 back in tax per annum (providing income tax eligibility is met).

Alongside having the option to claim income tax relief for the year that the investment was made, SEIS carry back relief can allow an investor to treat the investment as though it was made the year prior and thus claim 50% income tax relief for that year instead. 

For example: if an investor pledges £40,000 into an SEIS investment opportunity - once the SEIS3 form is received following the issuing of shares - they will then have the option to claim up to £20,000 back from their current or the previous tax year's income tax bill.

In order to claim SEIS income tax relief, investors have the option to either submit their completed SEIS3 form to HMRC and have the tax relief deducted from their PAYE income (where applicable) or include the details of their investment(s) when completing an annual tax return (to which the SEIS3 form will be provided as supporting documentation).

Another tax advantage mirrored by both the EIS and SEIS, capital gains tax relief means that any gain realised in the value of SEIS shares come the point of disposal is 100% free of CGT.

Not being liable to the usual 20% CGT charge (or 28% in the case of property sales) due in the UK when disposing of assets as an higher/additional rate taxpayer, SEIS investments have the power to considerably reduce an investor's tax bill, and in doing so further maximise the significant returns startup investments have the potential to generate. 

For example: if an investor pledges £40,000 in an SEIS investment opportunity, and their shares grow in value to £120,000 at the point of disposal, the £80,000 gain (that in the case of most assets would be liable to a £16,000 deduction) will be 100% free of capital gains tax.

To qualify for CGT exemption, SEIS shares must have been held for a minimum of three years either from the date they were issued or the official commencement of trading (whichever is later) and throughout that three year term the portfolio company must continue to remain within the bounds of SEIS eligibility.

Being classified as an exempt gain and therefore an automatic relief, any gain from an SEIS investment is not required to be included in your usual disposal proceeds, but should you follow the route of filing an annual tax return, details of the investment should be included in the capital gains summary form. 

One of the scheme's lesser understood, but perhaps most rewarding tax reliefs, SEIS reinvestment relief allows investors to reduce the CGT they're due on any chargeable asset (elsewhere than the SEIS) by up to 50%, should this gain be reinvested into SEIS qualifying shares.

Providing investors with the opportunity to halve the capital gains tax they pay when disposing of chargeable assets ranging from stocks, to property, to personal possessions worth more than £6,000, SEIS reinvestment relief has the ability to significantly reduce investor tax bills.

For example: should a higher rate taxpayer sell a property (other than their first home) and make a £100,000 gain, where usually they would be liable to pay £28,000 in capital gains tax, SEIS reinvestment relief would halve this payment to £14,000 should the full sum of the gain be reinvested into an SEIS investment opportunity.

To receive the full 50% reinvestment relief, the entire sum of the gain must be reinvested, should any less be reinvested, relief will be limited to half of the amount invested. Importantly, in order to claim SEIS reinvestment relief, investors must have already claimed income tax relief on their SEIS investment for that year.

All SEIS investments are entirely inheritance tax-free, meaning investors can pass down the full value of their shares without the threat of being charged 40% IHT should their estate be valued over £325,000 (the UK's current maximum IHT-free threshold).

A tax relief available due to the SEIS' eligibility for UK Business Property Relief (BPR), full inheritance tax exemption is unlocked for investors once shares have been held for at least two years (five years less than the minimum holding period required for many other IHT planning tools such as gifts or trusts). 

For example: if an investor already exceeding the £325,000 IHT nil-rate band pledges £200,000 in SEIS shares two years before passing, rather than having to forfeit £80,000 of that sum in inheritance tax, they can pass the full value of their shares on IHT and CGT free.

IHT relief is obtained by claiming business relief (BR). A claim for BR is normally made during the settlement of the shareholder’s estate, whereby the executors will need to complete a copy of probate return form IHT 412 and return this to HMRC as part of the overall probate process. HMRC will then assess the claim.

Acting as an insurance policy to further minimise the risks investing in startups can pose, SEIS loss relief is another tax relief shared by both the SEIS and the EIS, that allows investors to offset any potential losses against their marginal rate of income tax or capital gains tax.

To calculate SEIS loss relief, first you must find your effective loss (the original investment minus the return realised and any income tax relief that has already been claimed). From there you can either multiply that figure by your marginal rate of IHT or CGT to find how much of the SEIS relief you are due.

To work this out for your own potential investments, you can use an SEIS calculator. 

For example: if a higher rate taxpayer invests £40,000 in an SEIS opportunity, realises £10,000 in returns, and has already claimed £20,000 in income tax relief,  their effective loss of £10,000 could then be multiplied by their 45% rate of income tax to claim back a further £4,500 in loss relief, making their total net loss just £5,500.

Whilst additional personal tax circumstances can be considered when claiming SEIS loss relief, in essence the process is relatively straightforward and can be carried out by completing the SA108 form on an online or paper self-assessment form once SEIS3 forms have been received.