The EIS and SEIS schemes are widely used by crowdfunding companies. The headlines are catchy – getting up to half your investment back as tax relief is great, but there are a lot of other benefits and provisos to consider.
SEIS and EIS: The Basics
Here is a table of the tax breaks you can get if you invest in SEIS and EIS qualifying companies, as well as the most important rules such as how much you can invest each year.
|Amount you can invest in 1 year||£100,000||£1,000,000|
|Income Tax relief||50%||30%|
|Capital Gains Tax deferral relief||-||28%|
|Capital Gains Tax re-investment relief||50%||-|
|The investment needs to have attracted SEIS or EIS relief to qualify|
|Capital Gains Tax disposal relief|
|Inheritance Tax relief||100%|
|Investment needs to have been held for at least 2 years|
|Loss relief (against income)||45%|
|Amount of loss relief available is determined by the price paid for the shares, less the amount of income tax relief given|
|Holding limit of shares (connected)||<=30%|
|How long you must hold the shares from the date the company began trading||3 years|
|-||From the date the company began trading, providing that trade commences within 2 years of share issue|
As an investor how do I claim SEIS or EIS tax relief?
If a company is claiming it can offer you SEIS or EIS tax relief, then you should make sure it has received Advanced Assurance or Approval from HMRC before you invest. Without these there is no guarantee that you will get tax relief.
When the company reaches a point that investors can claim their relief (either 4 months since you invested or once they have spent 70% of the funds raised) the SCEC (Small Companies Enterprise Centre, part of HMRC) will send it a claim form, which the company then sends to investors.
You then just need to complete that form and submit it.
Specific risks of investing under the SEIS and EIS schemes
The SEIS and EIS schemes have lots of rules which a company must follow. There are rules for you too – most importantly, you must hold your investment for at least 3 years before selling. Each S/EIS investment you make has its own 3 year holding period, even if you’ve previously invested in the same company.
You should also be aware that some investor perks, like receiving a discount on the company’s goods/services, can be deemed valuable enough to invalidate your tax benefits.
If any of these rules are broken, even by accident, HMRC will likely demand that you repay any tax relief you claimed for investing in that company.
More information for investors
If you are an investor and want the most up to date information on the SEIS and EIS schemes, we recommend you look at the Enterprise Investment Scheme Association's website, particularly this page:
Information for Investors from the EISA