SEIS and EIS Investments
Investing in early-stage businesses can provide significant tax advantages through the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS).
These government schemes are designed to encourage investment in small and growing companies by offering attractive tax reliefs to investors.
For higher-rate and additional-rate taxpayers, these reliefs can significantly reduce the overall risk of investing in start-up companies.
Key Tax Benefits
| Relief | SEIS | EIS |
|---|---|---|
| Income Tax Relief | 50% | 30% |
| Maximum Investment | £200,000 | £1,000,000 (£2m if knowledge-intensive) |
| Capital Gains Tax Relief | Gains exempt after 3 years | Gains exempt after 3 years |
| Loss Relief | Yes | Yes |
| CGT Reinvestment Relief | Yes | Yes |
| Minimum Holding Period | 3 years | 3 years |
Income Tax Relief
One of the most attractive features of SEIS and EIS is the upfront income tax relief.
This allows investors to reduce their income tax bill in the year they invest.
Example – SEIS Investment
An investor invests £20,000 in a qualifying SEIS company.
They receive 50% income tax relief, meaning:
Investment: £20,000
Income tax relief: £10,000
The effective cost of the investment becomes £10,000.
Capital Gains Tax Benefits
Both schemes offer valuable capital gains tax advantages.
CGT exemption
If the shares are held for at least three years, any gain on disposal is completely free from CGT.
CGT reinvestment relief
Capital gains from other assets can be reinvested into SEIS/EIS shares to defer or eliminate capital gains tax.
Loss Relief
If the investment does not perform as expected, investors may be able to claim loss relief.
This allows the loss (after income tax relief) to be offset against income or capital gains.
Example – Loss Relief
An investor makes a £20,000 SEIS investment.
Income tax relief received: £10,000
Net investment: £10,000
If the company fails, the remaining £10,000 loss may be offset against income, potentially reducing the loss further depending on the investor’s tax rate.
Who Should Consider SEIS or EIS?
SEIS and EIS investments are generally most suitable for:
• Higher-rate and additional-rate taxpayers
• Individuals with capital gains they wish to defer
• Investors comfortable with higher-risk investments
• Business owners seeking tax-efficient investment opportunities
Important Considerations
Although the tax reliefs are attractive, SEIS and EIS investments carry higher investment risk because they involve early-stage companies.
Investors should consider:
• the commercial risk of the investment
• the minimum three-year holding period
• diversification across multiple investments
Professional advice should always be taken before making these investments.