All You Need To Know About The SEIS Fund

You might well have heard of the SEIS fund if you’re keen to start making investments in small and early stage UK-based startup businesses, a scheme that was brought in back in 2011 to help shake up tax incentives for investors.

The Seed Enterprise Investment Scheme (SEIS) was intended to help support the UK’s economic growth through the promotion of new enterprise and entrepreneurship, incentivising people to place capital into what is a particularly high-risk sector.

Numerous tax breaks are on offer to investors who choose to go down this route, which allows them to offset the inherent risks that are associated with sinking money into startup companies. It also gives them the opportunity, however, to be involved in a potentially highly successful new venture, with all tax breaks active three years after the initial investment is made.

SEIS income tax relief equates to 45 percent of your initial investment, which can be spread across the current tax bill and the previous year’s (known as a carry-back). This means that you can use any extra income tax relief for the year before if the current year’s income tax is reduced to zero.

Loss relief is also on offer by the government if your chosen investment fails. This can be offset against tax on other income, at the level of your highest income tax rate. There is also 100 percent inheritance tax relief against the value of the shares, which is granted two years after the initial purchase has been made.

What to consider before investing in a startup

Doing as much research into startups and investments is wise before parting with any cash. Bear in mind that you’re unable to control the startup receiving your capital and you mustn’t hold more than a 30 percent stake in the business you’re planning on investing in.

The company you plan to invest in must be UK-based and have a permanent establishment in the British Isles, with fewer than 25 employees. This applies to the whole group if your startup is the parent company of an organisation. The company must also be no more than two years old and have assets of under £200,000, trading in an approved sector (typically not in finance or investment).

You are able to receive up to 50 percent tax relief in the tax year in which your investment has been made, irrespective of the marginal rate.

You must also remember that these tax reliefs are only available because of the high risk associated with investing in this type of business. It’s also worth remembering that shares in an unquoted company can be quite hard to sell if you want or need to liquidate your investment.

And don’t forget that it can also be hard to find the right kind of startup to invest in unless you’re already an active business angel.