Beginning on April 6, 2023, early-stage private firms will be able to tap into an improved Seed Enterprise Investment Scheme (SEIS), one of several tax policies aimed at supporting entrepreneurship and early-stage firms in the UK.
The popular program is a positive for both investors and startups, as there are significant tax benefits provided to investors that are willing to shoulder the risk of investing in early-stage firms. For these firms qualified to take advantage of the program, it provides clear incentives to back these frequently risky ventures.
The UK government policy objective is stated as intending to “provide a boost to start-ups and young companies by widening access to the SEIS and increasing the funding limits, encouraging additional investment and so further supporting the growth of these early-stage companies.”
The improvements to the program are as follows:
- The ceiling that applies to the investment a company can raise in the relevant period and on which investors can claim relief increases from £150,000 to £250,000.
- The limit that applies at the date of investment on the “gross assets” a company can have – from £200,000 to £350,000.
- The age limit that applies to the definition of a company’s “new qualifying trade” at the date of investment – rises from 2 years to 3 years.
- The annual limits apply to the investment amount on which individuals can claim income tax and CGT re-investment reliefs – from £100,000 to £200,000.
The UK government expects that approximately 2000 businesses will benefit from SEIS each year.
At the same time, it is estimated that around impact around 9,000 individuals will use SEIS and benefit from the program, including the increased amounts invested and the affiliated tax relief.
Companies that raised funds under the SEIS scheme for the first time in 2020 to 2021 raised £154 million in investment, according to the EIS Association.
For investors, the tax benefits can be material. In brief, individual can take advantage of the following exemptions:
- A 50% initial income tax relief Actual net cash outlay of 50p in each pound invested.
- No Capital Gains Tax to pay
- CGT deferral relief Potential exemption of 50% of an existing CGT bill
- Loss relief Maximum exposure of 27.5p per pound for a 45% income taxpayer
- Inheritance tax relief Potential saving of 40p per pound