What is the Seed Enterprise Investment Scheme, SEIS?
EIS has been going for over 20 years now. It's raised over £1.2 billion that's been put into over 20,000 small companies. Seed EIS (SEIS) is EIS's little brother. It started in 2012 looking at even smaller start-up companies. EIS is perhaps more aligned to companies that are slightly further down the growth journey there.
In terms of Seed EIS and what it's trying to give to investors, one of the main benefits of Seed EIS is the tax reliefs. Seed EIS is one of the most tax advantageous schemes in the world. It can be split down into five different areas.
- So, the first one is income tax relief. Seed EIS gives you 50% income tax relief immediately. So, if you make a £10,000 investment, you immediately get 5,000 back courtesy of the taxman at that rate.
- Secondly, there's CGT re-investment relief. This is where, if you have a gain from another investment, that you've come out of, you immediately can reinvest that gain into EIS and get tax relief for 14% on that gain.
- Thirdly, there's no CGT on exit. Again, if you've made a £10,000 investment and it happily goes to £20,000, there's no CGT to be paid on the gain of £10,000 that you've made there.
- Fourthly, there's the inheritance tax relief. Once you've made your Seed EIS investment and you've gone through a two year holding period or waiting period, there's no IHT payable at that time. IHT is exempt on the investment that you've made. So, if you made, again, £10,000 investment, there's no 40% tax relief to be paid on that investment.
- Finally, the share loss relief whereby if your investment doesn't do so well, if you lose all your money for an investment, God forbid, you can have share loss relief where by you get 45% of tax relief on your marginal rate of tax. Again, more tax relief to be had.
So, five effective tax reliefs in one investment.
How can a Seed EIS fund like the British Robotics Seed Fund help investors diversify their portfolios?
So, I think this is a really exciting time for Seed EIS investments at the moment. We've seen over the last few years, as I said earlier since Seed EIS came in 2012, some of the earlier investments starting to come through and we're starting to see some exits from Seed EIS, which is fantastic and that really helps those Seed EIS funds that are coming through now.
What we're seeing also is a greater diversity in the Seed EIS market. So, we're seeing different asset classes, different types of industries, different type of sectors that these investments are being made in. So, I think the key thing for anyone looking to invest in Seed EIS, they should get a portfolio of seed investments, so rather than one or two that you just concentrate your money in. You might want to spread that money between 5, 6, 7, 8, even perhaps up to 10, or 12, or 15 and really get a good spread of investments, different sectors, different types of businesses. That way your returns will be much more significant, perhaps, than they would be if you just put them into one company.
How do Seed EIS investments help the development of an emerging sector like robotics?
I think the introduction of robotics as an investment for Seed EIS is a really exciting opportunity for a number of reasons, really. What we've seen with Seed EIS is that this is pretty much the type of investments that a Seed EIS is brought in for. To help really small companies that are just starting out on their growth journey to be able to get the funding they need to start and then grow and build. So, it's a really opportune time for robotics to come into this industry because Seed EIS gives you that initial burst of money that you need perhaps to take through to start your growth journey and go through to second, third and fourth rounds of funding going on into the future.
Dominic Keen: What's new in the Seed Enterprise Investment Scheme for 2017?
As always, there's a lot going on in both the EIS word and Seed EIS world. I think at the moment, we've seen over the last few years that EIS and Seed EIS have been fairly old school, traditional schemes. What we're slowly starting to see is more and more innovation, more development in both the Seed and the EIS industry. There's more sectors coming in, more asset classes, and more types of businesses as well, so I think for entrepreneurs this is a really exciting time.