Seed Enterprise Investment Scheme: A guide to SEIS for startups

What is SEIS? 

The Seed Enterprise Investment Scheme (SEIS) is a UK government initiative designed to encourage investment in early-stage startups, which often represent a high-risk opportunity. SEIS is one of several venture capital schemes available in the UK.

Companies using this scheme can raise up to £250,000 in venture capital funding, while offering generous tax benefits to individual investors – including a capital gains tax exemption and income tax relief on a qualifying SEIS investment.

SEIS rules and limits

Company eligibility criteria

You need to meet certain conditions to qualify for the Seed Enterprise Investment Scheme. For instance, your company must:

• Have been established in the UK (or have a permanent establishment in the UK)

• Have fewer than 25 full-time employees 

• Hold no more than £350,000 in gross assets

• Carry out a qualifying trade

• Not be trading on a recognised stock exchange

• Not control or be controlled by another company (except for qualifying subsidiaries)

• Not have already received investment through the Enterprise Investment Scheme (EIS) or from a Venture Capital Trust (VCT)

If you’re also thinking about applying for the Enterprise Investment Scheme, it’s important to understand the EIS eligibility criteria and rules for using both SEIS and EIS.

Gross assets limit

A company’s total assets cannot be worth more than £350,000 before raising investment through SEIS. The limit was increased from £200,000 in April 2023, allowing more businesses to benefit from the scheme.

Gross assets must be valued immediately before the new shares are issued. They include: 

• Fixed tangible assets (e.g.machinery or equipment)

• Current assets (e.g. cash or other assets that can be converted into cash within a year)

• Intangible assets (e.g. intellectual property)

Share classes

To qualify for SEIS, the new shares you issue must be full-risk ordinary shares that are not redeemable and carry no special rights to your assets. While the shares can have limited preferential rights to dividends, these rights cannot be allowed to accumulate or allow the dividend to be varied.

The shares must be paid for upfront in cash and your company should have a way to accept payment. There cannot be: 

• A guarantee on the investment or risk protection for the investor

• An arrangement to sell the shares at the end of, or during, the investment period

• Any intention to structure business activities for an investor’s benefit (in a way that’s not intended by the scheme)

• A reciprocal agreement allowing you to claim tax relief by investing back in an investor’s company

• A business plan to raise money purely for tax avoidance purposes

Qualifying trades

The money raised through SEIS must be used within three years of issuing the shares, for one of the following purposes:

• Preparing to start a new qualifying trade

• Carrying out a new qualifying trade (or an existing trade started less than three years ago)

• Funding research and development towards a qualifying trade

There are certain trades that don’t qualify for SEIS, including:

• Banking, insurance and financial services

• Property development 

• Legal or accountancy services 

• Coal or steel production

• Generating energy or fuel

Explore the full list of excluded trades and activities on the UK government (gov.uk) website. 

Risk to capital condition

First introduced by HMRC in 2018, the risk to capital condition is a requirement for SEIS companies. To meet this condition, you need to provide evidence that: 

• You plan to grow and develop your business, without relying on long-term support from SEIS investors

• Your investors are at risk of losing more capital than they’re likely to gain (as a net return)

HMRC will also consider other information about your company, such as: 

• Sources of income

• Assets

• Structure

• Use of subcontractors

• Marketing of the investment opportunity

• Relationship with other companies

Your company won’t meet the risk to capital condition if you have any arrangements designed to reduce risk – for instance, allowing an investor to take priority over other investors, withdraw their money as soon as possible or protect their money from being used first.

SEIS tax relief

Using SEIS can help you attract potential investors by offering generous tax reliefs, which mitigate the risk of investing in a less established business. 

The tax breaks available to investors under SEIS include:

• Up to 50% income tax relief on investments of up to £200,000 (per tax year)

• No capital gains tax (CGT) on SEIS shares held for three years or more

• Loss relief on shares sold for less than the purchase price

• No inheritance tax on shares held for at least two years

• Reinvestment relief – no CGT on any asset sold to buy SEIS shares 

→ Learn more about SEIS tax relief

SEIS Advance Assurance

If you want to apply for SEIS, it’s a good idea to secure Advance Assurance from HMRC first. While it’s not a guarantee (or a requirement), Advance Assurance shows potential investors that an investment in your company is likely to qualify for SEIS tax benefits. Without this confirmation from HMRC, many investors won’t consider high-risk investment opportunities.

Note that Advance Assurance is not an indication of whether an investor would meet the conditions of the scheme.

→ Can you apply for SEIS and EIS at the same time? Read our comparative guide to find out

Fundraising and SEIS compliance

Once you’ve closed your funding round and issued SEIS shares, you need to complete several steps to ensure your investors can claim SEIS tax relief:

1. Fill out and submit a compliance statement (SEIS1) to HMRC 

2. Receive a letter of authorisation (SEIS2) containing a unique reference number

3. Issue compliance certificates (SEIS3) to investors using your reference number

4. Continue to follow the scheme rules for at least 3 years after receiving investment