EIS & SEIS
If you are a director of a company seeking to raise finance, or if you are interested in investing in shares, you should consider the valuable tax relief available under the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS).
EIS and SEIS were introduced to encourage individuals to invest in smaller, high-risk companies. They offer generous income tax and capital gains tax benefits, namely:
- EIS Shares – a reduction of income tax of up to 30% of the lower of the amount subscribed or £1mllion (i.e. maximum relief of £300,000.
- SEIS Shares – a reduction of income tax of up to 50% of the lower of the amount subscribed and £100,000 (i.e. maximum relief of £50,000).
Capital Gains Tax
- No capital gains tax on the sale of EIS & SEIS shares, provided that the investor owned the shares for at least 3 years prior to sale and income tax relief was claimed.
- EIS reinvestment relief, which allows an individual to defer the capital gains on sales of other assets if they reinvest the proceeds in qualifying EIS shares.
- SEIS reinvestment relief, which allows an individual to exempt a portion the capital gains on sales of other assets if they reinvest the proceeds in qualifying SEIS shares.
EIS & SEIS: What’s the difference?
EIS and SEIS are both aimed towards unquoted companies looking to seek investment to further their trade.
The conditions for qualifying for EIS and SEIS are broadly similar, however as SEIS focuses on high-risk early-stage companies, the rules are more restrictive. A brief summary of some of the conditions that must be met include:
|Must not be carrying on certain prohibited or excluded trades (e.g. legal and accountancy, farming, property development).||Same as EIS|
|Must be an unquoted company||Same as EIS|
|Must not be controlled by another company||Same as EIS|
|The assets of the company must not exceed £15 million before the share issue, and £16 million after the issue||The assets of the company must not exceed £200,000 before the share issue|
|Must have fewer than 250 full-time employees (or 500 for knowledge intensive companies)||Must have fewer than 25 full-time employees|
|The funds raised from the share issue must be spent on a qualifying business activity within 2 years of issue/commencement.||Same as EIS, except the deadline for spending the funds raised is extended to 3 years.
|Share issue must take place within 7 years of the first commercial sale made by the company (10 for knowledge intensive companies)||The business activity carried on by the company must not be more than 2 years old.|
|Shares must be ordinary shares which do not carry preferential rights||Same as EIS|
How can we help?
There are strict conditions that apply to the company, the shares, and the investor(s) that must be met in order for EIS/SEIS to apply. We have assisted our clients by performing a detailed review of the rules and advising on whether they could qualify under EIS/SEIS.
Businesses looking to utilise EIS/SEIS for their company must send certain forms and information to HMRC to allow HMRC to certify that the company shares qualify for tax relief. We can help prepare the appropriate documents to put forward the best case for why a company will be eligible.
HMRC also offers advance assurance so that directors and investors can be certain that the company’s shares will qualify for EIS/SEIS before they are issued. We can also prepare these advance assurance claims to provide further comfort for clients.
EIS and SEIS investments carry financial risk and should only be undertaken after speaking with a qualified financial advisor.