In the UK there are several tax exemptions which may be available for individual investors to mitigate risk and reduce taxes paid on any return. SEIS, or Seed Enterprise Investment Scheme, is a powerful incentive for investors to support entrepreneurs and boost the UK innovation economy.
While CI has covered these interesting programs for years, recently, we reviewed a simple example of how an investor may benefit from issuers approved for the SEIS program.
SyndicateRoom, a fund of early-stage firms open to smaller investors that takes advantage of SEIS and other programs, posted some examples of how investors benefit. For example, if a £100,000 investment goes to zero, you are out just £13,500. That is your exposure. As you can immediately reduce your taxes by half the investment (£50,000) and receive tax loss relief of 45% (£22,500) plus a capital gains reinvestment relief (£14,500), your loss is dramatically mitigated. At the same time, the early-stage firm got to take a shot at executing its vision, hiring people, paying for goods and services, and boosting the overall economy.
If your luck is better and you happen to realize an exit of £150,000 on an investment of just £50,000 (£100,000 minus the £50,000 immediate tax relief), you will gain £100,000. Add in the capital gains reinvestment relief, and that number moves to £114,000. Not bad on a £50,000 net investment.
Of course seeing your investment go to zero is not good, but knowing your upside can be substantial, especially with the SEIS benefits, helps to encourage the investment in these private firms that are qualified for the exemption.
You may watch the explanatory video posted by SR here, but this is a program the US should consider to incentivize supporting entrepreneurs while mitigating the intrinsic risk—perhaps something that will appeal to both sides of the aisle.
