Frequently Asked Questions – SEIS & EIS

Investors can claim income tax relief of up to 50% (SEIS) or 30% (EIS) on their investments and exemption from capital gains tax on any profits made from selling SEIS or EIS shares after holding them for three years. Additionally, after being held for two years, investments are exempt from inheritance tax.

One notable advantage of SEIS and EIS investments is the ability to offset losses against income tax bills, which can mitigate financial risks. If an investment fails, investors can claim loss relief, allowing them to reduce their income tax liability by the amount of the loss multiplied by their marginal income tax rate after considering any received tax relief.

For SEIS, companies must be under three years old, have fewer than 25 employees, possess gross assets under £350,000, and secure no more than £250,000 in investment. EIS-qualifying companies are generally larger, can be older, and often have more assets and employees but are still small to medium-sized enterprises. Both schemes exclude certain sectors, such as property and financial services.

Investors with a significant income tax liability and the capacity to absorb potential losses due to the high-risk nature of the investments might find SEIS and EIS attractive. These schemes are particularly suited to high net worth and sophisticated investors looking for growth opportunities and willing to commit capital for an extended period.

Both SEIS and EIS investments carry high risks as they involve small companies that are more likely to fail than larger, more established companies. The investments' illiquidity also means they are not suitable for those needing quick access to their capital. They should be considered long-term investments, with a minimum holding period of three years to retain tax reliefs.

The annual investment limit for SEIS is £200,000, while for EIS, the maximum amount you can invest is £1 million per tax year or £2 million, by supplying anything above £1 million is in “knowledge-intensive” investments.

Investors must be UK taxpayers and cannot hold more than a 30% stake in the company. Employees of the invested company cannot benefit from SEIS and EIS, though they can invest as directors.

To claim tax relief, investors must obtain a company's SEIS or EIS compliance certificate and submit a claim to HMRC through their self-assessment tax return.

SEIS and EIS shares are not listed on public stock exchanges, so selling them typically relies on a liquidity event planned by the investment managers, such as a secondary market trade sale, management buy-out, or the company's later listing on a stock market.

If SEIS or EIS shares are sold before the minimum holding period (three years) expires, investors may be required to repay any income tax relief claimed on the investment.

Advance Assurance is a service from HMRC allowing companies planning to raise money under SEIS or EIS to receive pre-approval that their share issue is likely to qualify for tax relief. This assurance helps attract investors by providing early confirmation, though actual qualification only occurs post-share issuance.