Tax relief at up to 78% and the Seed Enterprise Investment Scheme
The new Seed Enterprise Investment Scheme was introduced in the last Budget and offers generous tax relief for investments into qualifying companies which are start-up and fledgling. With the aim of promoting entrepreneurship in the UK economy and with the lack of lending by mainstream lending by the banks this was the Chancellor’s idea to foster investment.
The tax reliefs offered to investors are generous:
- Income taxation relief on the sum invested at the taxpayer’s highest tax rate of either 40% or 50%;
- Exemption from capital gains (during 2012/13) if the proceeds are invested into the company;
- Income taxation relief for capital losses if the investment fails;
- Exemption from capital gains tax on the proceeds of sale of shares in the SEIS scheme.
SEIS investors can make a maximum investment of £100,000 per annum that can be in a basket of UK companies who have fewer than 25 employees; trade must be less than two years old; investment is by way of ordinary shares in qualifying companies (which excludes certain sectors such as finance or investment or property companies – they want to encourage investment in productive activities that will kick-start entrepreneurship and promote employment in the UK economy).
Mr A make a capital gain in 2012/13 and he invests £100,000 in a SEIS. Mr A is a 50% taxpayer.
Tax relief on his investment is £78,000 being £50,000 income tax relief and £28,000 capital gains tax relief on sum invested. A total of £78,000 combined income and capital gains tax relief!
It gets better!
In the event of the SEIS company failing Mr A will get income taxation relief on the loss on disposal. Tax relief is now 101% – so the downward risk has been eliminated. The upward reward can be massive depending on the proceeds on the ultimate disposal of the SEIS shares. The logic of the scheme is to enable taxpayers to invest directly in the next Amazon or Google without worrying about loosing the entire funds invested.
SEIS schemes must receive HMRC approval.