In the UK, early-stage private firms are supported with innovative tax exemptions designed to make investing in risky ventures more appealing. As everyone knows, a robust entrepreneurial and startup ecosystem is crucial for a growing economy. UK policymakers have made investing in private firms more appealing by reducing risk and incentivizing investments. The Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) provide immediate reductions in taxes as well as the potential for no capital gains if an issuer experiences a good exit. The SEIS is designed to support startups, while EIS is for more mature private firms, but each tax benefit must be approved to qualify for the programs which are used by securities crowdfunding platforms, and other firms, to help issuers raise growth capital.
Recently, the UK government made some improvements to SEIS, expanding the program.
If you are interested in learning more about the EIS/SEIS program, you may review a recent document here provided by the EIS Association.
Seedrs a top securities crowdfunding platform in the UK, has distributed a note sharing that more than 14,000 Seedrs investors have invested over £22 million in SEIS-eligible businesses. The update allows investors to take advantage of SEIS – up to £200,000 from the previous cap of £100,000.
Seedrs provides a brief description of the benefits of SEIS:
- Individuals receive income tax relief at a rate of 50% on the value of the investment.
- Investors can benefit from capital gains tax (CGT) reliefs. CGT is exempt from half of any gain on the SEIS shares if they are reinvested into another SEIS-eligible company.
- As long as SEIS shares are held for at least three years, you will not have to pay CGT on the selling of SEIS shares. If you make a loss on the disposal, you can set this against your chargeable gains or income.
Focusing on the 50% tax deduction – this is a huge benefit as an investor may only have half of their money at risk for an SEIS-qualified investment. As early-stage firms tend to be very risky investments – a characteristic that some risk-averse policymakers do not like, this mitigates much of that concern.
As for EIS, this program is similar, but it provides a tax deduction of 30% (not 50%) – still very beneficial. Seedrs reports that in 2022, 72% of the securities offerings were eligible for EIS.
While an economist will view EIS/SEIS as subsidies – if you are going to subsidize anything, you probably want to support innovative young firms and entrepreneurs. It is this sector of the economy that creates new jobs and generates wealth for all.