A Guide To SEIS Investments

A Guide To The Seed Enterprise Investment Scheme (SEIS) For UK Investors

The Seed Enterprise Investment Scheme (SEIS) is a UK government-backed program designed to help startups raise money from investors. SEIS offers tax breaks and other benefits to investors looking to make seed stage investments into UK qualifying startups, making it an attractive option for those looking to provide seed funding uk for start ups.

What is the Seed Enterprise Investment Scheme (SEIS)?


The Seed Enterprise Investment Scheme was introduced by the UK Government in April 2012, as a tax relief scheme to encourage seed funding for startup companies - the largest net contributor to job creation in the UK - by offering generous income tax and capital gains tax reliefs.


How is the Seed Enterprise Investment Scheme (SEIS) different from the Enterprise Investment Scheme (EIS) and venture Capital Trusts (VCTs)?


Compared to EIS, the SEIS scheme UK focuses on smaller, younger UK companies - i.e. predominantly seed funding for start ups. SEIS tax reliefs are greater than EIS tax relief to reflect the additional risks associated with these.


In terms of tax reliefs, the maximum you can invest under the different schemes and the quantum of the associated tax reliefs are different under the different schemes - as explained further below.


VCTs offer no inheritance tax advantage, and it is not possible to offset losses against capital gains made elsewhere.


When you invest in a VCT, you acquire shares in the trust, not in the underlying companies. So, theoretically, you could sell your shares any time and realize your investment. Dividends form much of any return to investors when you invest in a VCT. 


In contrast, when you invest in an SEIS or EIS fund you acquire shares in the underlying companies. As those are not typically listed, you cannot usually sell your SEIS or EIS on the stock market. You can only realise your seed investment uk when there is an exit; this means the company is sold, listed on a stock market or refinanced.


Who can invest in Seed Enterprise Investment Scheme (SEIS)?


Individuals who want to make SEIS scheme investments must be UK taxpayers, be at least 18 years old and invest their own money, not someone else's. In addition, there are limits on how much individuals can invest.


For example, those subject to UK income tax up to £100,000 per annum cannot claim SEIS relief against more than half of their total income so any above this limit will not be SEIS eligible.


What are Seed Enterprise Investment Scheme (SEIS) shares?


SEIS shares are ordinary company shares but they must meet SEIS eligibility conditions to qualify for tax relief. 


SEIS shares can be issued by any company incorporated in the UK or European Economic Area (EEA). SEIS concessional CGT treatment remains with SEIS shares, even if they are transferred into another person's name. If SEIS relief is given then SEIS shareholders will not pay Capital Gains Tax when disposing of their SEIS shares.


What kind of companies qualify for the Seed Enterprise Investment Scheme (SEIS)?


The Seed Enterprise Investment Scheme (SEIS) is a government-backed program that offers tax relief to investors who back qualifying small businesses. It is therefore a helpful incentive for investors to provide seed funding for UK based start ups.


To be SEIS-qualifying, a firm must be small and unquoted, have traded for a maximum of 2 years, have gross assets of less than £200,000 and fewer than 25 employees at the time of investment. The SEIS scheme uk offers investors 50% relief on income tax and capital gains tax (CGT), so it can be a very attractive option for those looking to invest in early-stage businesses.


If a company has received SEIS Advance Assurance it means it has received a letter from HMRC confirming the company's proposed share issue would qualify for SEIS tax relief, based on the information the company provided. 


Advance Assurance does not guarantee the company will qualify for SEIS tax relief. This can only be confirmed after the company has issued the shares. 


Irrespective of whether the company has received SEIS Advance Assurance, after it issues the shares it must submit a compliance statement to HMRC. At that point SEIS tax relief can be confirmed.


What are the tax breaks from investing in Seed Enterprise Investment Scheme (SEIS) qualifying companies?


The Seed Enterprise Investment Scheme offers a range of tax breaks for UK investors.


SEIS Income Tax Relief - the SEIS scheme uk offers 50% UK income tax relief on the amount invested in any one year or part year. This can reduce or eliminate an investor's personal tax bill for SEIS shares they hold at 31 March the following year. SEIS shares cannot be sold until they qualify for SEIS relief and SEIS shares held on 5 April each year, that have not yet qualified for SEIS relief, can still give rise to a tax bill on the company. However, SEIS shares disposed of after SEIS relief is given are free from Capital Gains Tax (CGT).


SEIS Capital Gains Tax Deferral - SEIS scheme UK investors will only pay UK CGT when SEIS shares are sold or realised. This means any increase in value at the point of sale is exempt from tax. Any SEIS shares which don't switch into trading stock can qualify for this deferral too. If a shareholder surrenders their SEIS shares back to the company though there would be a SEIS disposal and a SEIS gain or loss would occur.


Reinvestment relief - this allows individuals to reinvest any chargeable gains from the disposal of any asset into SEIS shares. This allows for the deferral of CGT which will crystallise on the disposal of SEIS shares. 


Inheritance Tax Relief and Loss Relief - SEIS scheme  investors also receive UK inheritance tax relief and loss relief on exit.


Please remember that the tax benefits you receive depend on your individual circumstances, and that the rules surrounding SEIS can change. SEIS investments are only beneficial if the company maintains its SEIS status.

When can I claim the income tax relief in relation to my SEIS investment?


You can claim the income tax relief after your shares are allotted and you receive your SEIS3 certificate. SEIS portfolios tend to be evergreen and the portfolio manager will typically allot shares at regular intervals. Shares are normally allotted soon after the offer closes.


The date your shares are allotted (not the date you invested) will determine the investment date for tax purposes. SEIS3 certificates are usually issued after the allotment and after the SEIS company receives confirmation from HMRC it has satisfied all the requirements. Once you receive your SEIS3 certificate(s), you can claim the tax relief via your tax return.


If you have already filed your tax return, you can claim the SEIS relief. A SEIS claim for SEIS tax relief can be submitted up to five years after the 31 January following the tax year in which the shares were issued.


How much can I invest in the Seed Enterprise Investment Scheme (SEIS)?


SEIS offers investors a 50% income tax relief on investments of up to £100,000 per year, and a capital gains tax exemption on any profits made from the sale of SEIS shares.


The minimum investment in SEIS will vary depending on the fund, but it is typically in the region of £10,000. SEIS also offers a ‘carry back’ facility, which allows investors to claim relief on investments made in previous tax years.


How can I invest in Seed Enterprise Investment Scheme (SEIS) qualifying companies?


SEIS offers vary, but SEIS portfolio offers can be evergreen; you can invest at any point in the year. Individual company SEIS offers may have a fundraising target which must be reached before SEIS funds will be released to the company for their entrepreneurial activities (companies also need to meet certain criteria).


SEIS portfolios typically offer fixed term investment periods of 3-5 years, SEIS investments are not traded on stock markets, and SEIS offers tend to have a fundraising target when they close new investors.


Should I Invest in a Seed Enterprise Investment Scheme (SEIS) fund or a single SEIS qualifying company?


When considering providing seed funding for startups through the Seed Enterprise Investment Scheme (SEIS), there are two main options: investing in a SEIS qualifying company directly, or investing in a SEIS fund or portfolio.


Both options have their own pros and cons, and it is important to carefully weigh up the risks and rewards before deciding which route to take.


Making a direct seed investment into a UK SEIS qualifying company gives you more control and visibility over your investment, but also comes with a greater risk as the success of your investment depends solely on the fortunes of that company.


Investing in a SEIS fund or portfolio can offer you some diversification, as well as the peace of mind that a professional manager is researching opportunities and making investment decisions for you. However, it also comes with a price and fund managers' expertise tends to be expensive.


Please remember that SEIS investments are very high risk and only suitable for experienced investors. Many SEIS companies – whether through a SEIS fund or as a standalone investment – will fail.


What returns could SEIS investments offer?


SEIS offers investors a chance to invest in high-growth potential businesses with the potential for high returns. Typically, higher target returns indicate a higher risk. SEIS is an attractive investment opportunity for those looking to invest in high-growth potential businesses. Britbots targets returns of 3x every pounds invested.


How can I sell my SEIS investment?


If you want to sell your SEIS investment, you cannot do so on the stock market like you would with other investments. Instead, it is the managers' responsibility to come up with an exit strategy that will allow them to return your capital and any tax-free growth. The manager will typically give an indication of the targeted exit strategy and timeframe (typically >5 years) at the outset. Common strategies include management buy-outs, trade sales or refinancing. However, there are no guarantees.


Please note, SEIS are long-term investments. The minimum holding period to retain the income tax relief is three years.

What are the key risks of making SEIS investments?

An SEIS investment is a high-risk investment that offers potential high returns.


SEIS investments are for experienced investors only, as they come with a high risk of losing the entire value of your investment. They are for high net worth or sophisticated investors who have no need for immediate liquidity and are able to withstand a potential total loss.


In addition, to retain all the tax reliefs available, you must hold the investment for a minimum period of three years and the companies must retain their qualifying status.


SEIS investments are less liquid than other stock market investments and SEIS managers will be harder to sell. SEIS investments tend to involve providing seed funding for very early stage start ups so their value can fall as well as rise, so SEIS investors may get back less than they invest.


Tax advantaged investing schemes, such as EIS and SEIS, depend on the individual circumstances of each investor and of the company concerned. These schemes may be subject to change in the future, so it's important to check with an expert if you're not sure about the tax treatment or any of the possible tax reliefs of your investment.


Investing in start-ups and early-stage businesses involves risks, including illiquidity, lack of dividends, loss of investment and dilution. So it's important to only invest money you can afford to lose as part of a diversified portfolio.

About Britbots' SEIS Fund

Britbots is a specialist SEIS fund and EIS fund investor. We invest in companies using artificial intelligence, robotic investment funds or other automation technologies to develop productivity gains and are typically the first external investor into a business.



If you are an entrepreneur looking for pre-seed or seed investment in the UK automation, artificial intelligence or robotics space please email alex@britbots.com


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