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Quick guide to the Seed Enterprise Investment Scheme (SEIS)

The Seed Enterprise Investment Scheme has emerged as a good way for small business startups to attract investment that can really help their venture get off the ground.

But exactly how does it work – and what are the risks? Let’s take a look.

What is the Seed Enterprise Investment Scheme (SEIS)?

SEIS is designed to help small businesses in their early stages raise equity finance by attracting investors. It does this by offering tax reliefs to individual investors who purchase shares in companies eligible for SEIS.

The scheme is similar to the long-standing EIS (Enterprise Investment Scheme), but is aimed specifically at businesses that have started up recently. In many cases, investors through the SEIS scheme will continue to invest under EIS.

What tax relief is available under SEIS?

The two main benefits of the Seed Enterprise Investment Scheme are Income Tax relief and Capital Gains relief, both of which can make the investor’s money stretch that little bit further.

Income Tax relief is available as long as the investor holds shares for a minimum of 3 years. Relief is available at 50% of the shares cost, up to a maximum of £100,000 annual investment.

Capital Gains tax relief is available for investors who have sold an asset and invested some or all of the gains into a company eligible for the Seed Enterprise Investment Scheme.

Remember, this is a very condensed description of the tax relief available under SEIS – always get advice before investing.

What are the risks of SEIS?

Like any investment scheme, SEIS comes with the risk that you might never see your money again if the company you’re investing in fails.

This is part and parcel of any investment, and most investors accept this risk if they go ahead. But thanks to the way SEIS works, the losses can actually be small relative to the amount invested.

For example, on a £100,000 investment the investor may receive £30,000 tax relief. Once other costs are taken into consideration the resulting loss may actually stand at around £38,000. From this example it’s easy to see how this investment can make much better financial sense than a standard investment.

Again, this is a basic example and you should seek financial advice before you go ahead and invest in SEIS. But for many investors today, the Seed Enterprise Investment Scheme can be a very valuable part of your portfolio.

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