(S)EIS continues to dominate UK venture funding

16 February 2017 03:17 PM | #Investor Resources

The Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) have been extremely successful since their respective inceptions. Based on HMRC’s latest available data from October 2016 and London & Partners data, the extent of their popularity is clear, with more than 50% of all venture funding in the UK in 2014 being routed through (S)EIS.

According to HMRC’s latest figures from October 2016, EIS, which was introduced in 1993/1994, has facilitated funding totalling almost £14.2 billion in 24,620 businesses. SEIS was only launched in 2012/2013 but has resulted in 4,775 businesses raising £433 million since inception. In 2014/2015 alone, 3,265 businesses raised £1.816 billion under EIS and 2,290 businesses £175 million under SEIS. To put this into context, London & Partners reports that in 2014 UK venture funding totalled £3.85 billion.

Although the schemes have been widely publicised and available for years, we continue to receive a steady stream of enquiries about the advantages of (S)EIS. We thought therefore that it would be useful to summarise how an investor might benefit from these schemes, which include:

·         Capital Gains Tax relief

·         Income Tax relief

·         Tax offsets against losses

·         Inheritance Tax exemption

For the sake of brevity, we outline the tax benefits associated with SEIS below. Whilst this is a brief summary, it is not by any means exhaustive as individual circumstances will need to be taken into consideration. Please refer to HMRC’s full guidance on (S)EIS here

Capital Gains Tax (CGT)

There are two forms of CGT relief available via SEIS.

Firstly, gains resulting from disposal of any asset can benefit from CGT relief on 50% of the amount invested up to £100,000. If, for example, a disposal results in a gain of £100,000 which is reinvested in SEIS qualifying shares, CGT relief can be claimed on £50,000, which at 20% CGT results in £10,000 CGT relief.

Secondly, there is no CGT arising from the disposal of SEIS shares after being held for three years.   

Income Tax Relief

Investments of up to £100,000 in SEIS qualifying shares can benefit from tax relief equivalent to 50% of the amount invested. If, for example, £100,000 were invested, the investor would benefit from income tax relief of £50,000.

Loss Relief

If SEIS shares are disposed of at a loss, the loss can be offset against the investor’s CGT or income tax liabilities in the year in which they were offset, net of CGT or income tax relief already claimed.

Inheritance Tax Exemption (IHT)

Once SEIS qualifying shares have been held for two years, no IHT liability should be triggered on the death of the investor. 

It is worth noting that HMRC defines a number of activities which do not qualify for (S)EIS. Excluded trades include, amongst others, financial and investment activities, property development, most subsidised renewable energy generation and export, as well as provision of legal/accountancy services. For a full and exhaustive list of excluded activities, as well as detailed information on (S)EIS, please refer to HMRC’s guidance here.

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