SEIS tax relief

What is SEIS tax relief? 

The Seed Enterprise Investment Scheme (SEIS) is a UK government-led programme that aims to drive venture capital investment in early-stage startups. Qualifying companies can raise up to £250,000 while offering tax incentives to investors – including up to 50% income tax relief and a capital gains tax exemption. 

By providing an initial return on investment, SEIS tax relief helps to mitigate the risk of financing less established businesses. This article explores the various benefits of SEIS and how investors can claim SEIS tax relief.

SEIS tax benefits for investors 

There are five tax breaks available to investors who fund SEIS companies: 

• Income tax relief 

• Capital gains tax relief 

• Reinvestment relief

• Loss relief

• Inheritance tax relief 

SEIS income tax relief

An individual investor can provide up to £200,000 of funding per year for SEIS-eligible businesses (before April 2023, the annual limit was only £100,000). When it’s time to file a tax return to HMRC, they can claim income tax relief on up to 50% of their investment.

For instance, if you invested £10,000 in a startup through SEIS, you could claim a maximum of £5000 back at the end of the tax year.

Capital gains disposal relief 

When a shareholder disposes of an asset, they typically have to pay capital gains tax (CGT) on any increase in value from the date of acquisition to the point of sale. However, SEIS shares held for at least three years before being sold are exempt from CGT.

Capital gains reinvestment relief 

Investors won’t have to pay capital gains tax on the sale of an asset if all or part of the gain is reinvested in an SEIS-qualifying company. Capital gains tax relief is available on 50% of the investment, providing the investor also receives income tax relief.

Loss relief 

If investors end up selling their SEIS shares for less than the purchase price, they can claim SEIS loss relief. The amount of loss relief they’re eligible for depends on the at-risk investment (i.e. the money lost minus the income tax relief already received) and their personal income tax rate.

Inheritance tax relief 

In accordance with the UK’s Business Property Relief (BPR) rules, there would be no inheritance tax liability on SEIS shares following the death of an investor (as long as the shares were held for at least two years).

Eligibility for SEIS tax relief 

For an investment to be eligible for SEIS tax relief, both companies and investors must follow certain rules.

Failing to meet the following conditions may disqualify the investment from tax relief: 

• The SEIS shares must be full-risk ordinary shares that are non-redeemable and carry no special rights to the company’s assets

• There must be a risk of loss to the investor’s capital (known as the ‘risk to capital condition’)

• The scheme cannot be used for tax avoidance purposes

• The company must receive SEIS funds before issuing new shares to investors. However, there should not be too much of a gap between these events, unless the SEIS investment happens through an Advanced Subscription Agreement (ASA)

SEIS Advance Assurance

Companies can apply for Advance Assurance from HMRC, which shows investors that their investment is likely to qualify for SEIS tax relief. 

How does SEIS tax relief work?

Investors have up to five years to claim SEIS tax relief (from 31 January following the tax year in which the investment is made). This time period aligns with the annual deadline for self-assessment tax returns. 

Keep in mind that unused income tax relief can’t be carried forward to the next year if an investor doesn’t reach the £200,000 annual SEIS limit. However, it is possible to apply SEIS relief on an investment to the previous tax year.

SEIS and EIS tax relief 

Investors can claim tax relief from multiple venture capital schemes in the same year. For instance, it's possible to benefit from both SEIS and EIS tax relief.

→ Learn more about the similarities and differences between SEIS and EIS

How to claim SEIS tax relief 

Once the SEIS company has closed its funding round and completed the three steps below, investors can claim SEIS tax relief as part of their annual self-assessment tax return. They must report the total amount of SEIS funding as well as the money invested through other venture capital schemes. 

1. File an SEIS1 form with HMRC

After carrying out a qualifying business activity for at least four months (or spending at least 70% of the SEIS funds), the company must submit a compliance statement (SEIS1) to HMRC.

2. Receive an SEIS2 form

It typically takes around 15-45 working days for HMRC to review an SEIS compliance application. Once the investment status has been approved, HMRC will send a letter of authorisation (SEIS2) to the company, containing a Unique Investment Reference (UIR) number) for the share issue.

3. Issue SEIS3 certificates

The company must complete an SEIS compliance certificate (SEIS3) for each investor, using the unique reference number provided by HMRC. This document is proof that the investment is eligible for SEIS tax relief.