The seed enterprise investment scheme (SEIS) is designed to help small companies raise modest amounts of funding (up to £150,000). The investor must subscribe for new shares issued by the company (not buy them from another shareholder), and in return he can claim income tax relief equal to 50% of the cost of those shares.
If the investor has made a capital gain in the same tax year as he
makes the SEIS investment, up to 50% of the amount invested in SEIS
shares can be set against that capital gain to reduce the CGT payable.
This CGT reduction was 100% for gains in 2012/13, but is only 50% for
gains arising in 2013/14.
That sounds wonderful, but there are a lot of conditions for the
investor and the company to comply with before the SEIS tax relief can
The first hurdle is to check if the company's trade will qualify for SEIS relief. Many 'safe' financial trades such as banking, money lending, accountancy or legal services are excluded. Also any trade where the company is likely to hold valuable property doesn't
qualify such as; running hotels or nursing homes, farming, woodland
management, property development or property dealing.
Businesses which are related to any of the excluded trades need to be
looked at very carefully. For example running a public house can
qualify, but if it lets residential rooms it could be classified as a
hotel which would mean it doesn't qualify. An estate agent business may
qualify, but a large part of an estate agent's business can be arranging
mortgages, which is a financial activity that doesn't qualify. HMRC are
prepared to provide assurance in advance of issuing shares as to
whether a particular trade will qualify.
The second major hurdle is that the SEIS investor must not hold more
than 30% of the company either alone, or together with relatives or
other associates. Other shareholders can hold 30% or more of the
company, but those shareholders will not be eligible for the SEIS tax
An SEIS investor can invest up to £100,000 in a single tax year on
which tax relief can be claimed, which can be spread over a number of