SEIS Tax Benefits Example

Here are examples of how the tax reliefs work under SEIS below but these are for illustration only and do not constitute tax advice for any investor:

1. If you invest £100,000 from a capital gain realised this tax year, you can get:

a) An income tax rebate (assuming you paid enough income tax) of up to 50% – £50,000

b) A CGT wipe-out relief of your capital gains of up to 14% – £14,000 which is a 50% saving in normal CGT liability.

On exit after three years or more, this gives:

a) Successful Exits

This leaves a net cost of investing of £36,000 (36p in the £)

So, if an investment of £10,000 returned the initial amount invested on exit, you would have generated a gain of just over 2.7 times the net cost of investment (the net cost was £3,600). If an investment sold for three times the investment cost (£30,000), then the capital gain of £20,000 is CGT free

b) Investment Fails

If an investment fails, then you receive loss relief at your marginal tax rate on the amount invested less the income tax relief received.

So, if an investment of £10,000 was made in a company and £1,400 was saved in CGT and £5,000 was received back in income tax relief, the loss relief would be £2,250 if you are a 45% tax payer (£10,000 less £5,000 income tax relief multiplied by 45%). This gives a £1,350 net overall loss where £10,000 was invested and then received tax reliefs of £8,650. If you are a 40% tax payer, the loss relief would be £2,000 (£10,000 less £5,000 income tax relief multiplied by 40%). This gives a £1,600 net overall loss where £10,000 was invested and received tax reliefs of £8,400.

2. If you invest £100,000 this tax year but do not have any chargeable gains, you can get:

a) An income tax rebate (assuming you paid enough income tax) of up to 50% – £50,000.

On exit after three years or more, this gives:

a) Successful Exits

This leaves a net cost of investing of £50,000 (50p in the £).

So, if an investment of £10,000 returned the initial amount invested on exit, it would have generated a gain of 2 times the net cost of investment (the net cost was £5,000). If an investment sold for three times the investment cost (£30,000), then the gain of £20,000 is capital gains tax free.

b) Investment Fails

if an investment fails, then you receive loss relief at your marginal tax rate on the amount invested less the income tax
relief received. So, if an investment of £10,000 was made in a
company and £5,000 was received back in income tax relief the loss relief would be £2,250 if you are a 45% tax payer (£10,000 less £5,000 income tax relief multiplied by 45%). This gives a £2,750 net overall
losswhere £10,000 was invested and then received tax reliefs of £7,250. If you are a 40% tax payer, the loss relief would be £2,000 (£10,000 less £5,000 income tax relief multiplied by 40%). This gives a £3,000 net overall loss where £10,000 was invested and received tax reliefs of £7,000.

Summary

  Scenario 1 Scenario 2 Scenario 3 Scenario 4
Investment Amount £10,000 £10,000 £10,000 £10,000
Tax Incentive 1: Income Tax Relief at 50% (£5,000) (£5,000) (£5,000) (£5,000)
Net cost to Investor (£5,000) (£5,000) (£5,000) (£5,000)
Tax Incentive 2: Capital Gains Tax wipe-out relief at 14% (£1,400) n/a (£1,400) n/a
Net cost to Investor £3,600 £5,000 £3,600 £5,000
Exit Realisation £20,000 £20,000 n/a n/a
Tax Incentive 3: Tax free capital gains £ – £ – n/a n/a
Tax Incetive 4: Inheritance tax relief £ – £ – n/a n/a
Tax Incentive 5: Loss relief at 45% n/a n/a (£2,250) (£2,250)
NET GAIN/(LOSS) TO INVESTOR £16,400 £15,000 (£1,350) (£2,750)
Gain percentage on net cost 355% 200% n/a n/a
Loss percentage on investment amount n/a n/a (13.5%) (27.5%)

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