EIS guide

41 40 RESEARCH AND DUE DILIGENCE THE SEED ENTERPRISE INVESTMENT SCHEME The Seed Enterprise Investment Scheme Introduction The Seed Enterprise Investment Scheme (SEIS) launched in 2012 as a derivative of EIS. Its aim is to encourage seed investment in early stage companies and while the rules governing it are similar, there are some important differences between the two. Since its launch, 12,900 companies have received investment and over £1 billion of funds have been raised. It therefore remains a small section of the overall EIS market and as the above graph shows, since its launch annual investments have somewhat plateaued. Rules for investors and qualifying companies While the majority of rules related to qualifying companies for EIS also apply to the SEIS, the latter has some slightly more stringent requirements. An investee company must carry out a new qualifying trade, which means that the trade must not have been carried out for more than two years by either: • the investee company • any other person who then transferred it to the investee company The investee company, or any qualifying subsidiary, must not have carried out any other trade before starting the new trade. It also cannot be a member of a partnership. The size of the investee company must also be considerably smaller than the maximum size of an EIS-qualifying company when the shares are issued. AMOUNTS OF FUNDS RAISED THROUGH SEIS, 2012-13 TO 2017-18 * £0 £50m £100m Figures for 2017-18 are provisional £150m £200m £250m 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 Amount of investment SOURCE: HMRC Estimated value after all returns processed Risks and Rewards Clients will face the same risks as those for EIS, however due to the smaller size of the companies some of these will be magnified, with the likelihood of a company collapsing substantially increased, for example. In return for these higher risks, the SEIS offers reliefs more generous than EIS in two ways: • Up to 50% income tax relief, although this is limited to £100,000 of SEIS investments per year and there is no special treatment for knowledge-intensive companies. As with EIS, the minimum holding period is three years and income tax relief can be carried back to the previous tax year. • 50% reinvestment relief - this is not deferral relief (as under EIS), but will see 50% of the reinvestment become exempt from tax. This is capped at £100,000 investment, so the maximum relief available is £50,000. SEIS also offers reliefs similar to EIS: • 100% CGT relief on disposal (capped at £50,000) • 100% IHT relief (via Business Relief after a minimum holding period, applicable to most SEIS-qualifying companies) • Loss relief (losses are available to offset against capital gains or, in certain circumstances, income tax) Size of SEIS-qualifying companies when shares issued £200,000 gross assets No more than 25 full-time equivalent employees Less than 25 SEIS helps get companies off the ground. MARK BROWNRIDGE, DIRECTOR GENERAL, EISA