Frequently asked questions
What is the difference between SEIS and EIS?
SEIS and EIS follow the same broad principles and qualifying conditions for investors and companies; however, SEIS is targeted at smaller, start-up companies. For example, an SEIS qualifying company must have gross assets of less than £200,000 and fewer than 25 employees at the time of investment. For EIS, the gross assets limit on a group basis is £15m immediately before the relevant investment, and £16m immediately after the investment, and up to 250 employees at the time of the relevant investment (or 500 employees for a knowledge-intensive company).
A company must have been trading for less than two years to qualify for SEIS investment. For EIS, there is an initial investing period of seven years from the date of the company’s or group’s first commercial sale, or ten years for a knowledge intensive company or group within which the first relevant qualifying investment must be made.
Upfront income tax relief for individuals of 50% of the amount invested is available under SEIS, and 30% tax relief is available under EIS. The relief is given as a credit against the investor’s income tax liability for the relevant year(s).
Can you carry back SEIS and EIS relief?
SEIS and EIS income tax relief against an individual’s income tax liability can be carried back one tax year.
Can you apply for SEIS and EIS at the same time?
A company can apply for advance assurance in respect of SEIS and EIS at the same time. In situations where one qualifying fundraising is expected to take place, the first £150,000 can be raised under SEIS with the balance qualifying for EIS assuming all relevant conditions are satisfied. The SEIS shares must be issued on an earlier date than the EIS shares.
How much can you invest under SEIS?
An individual can invest up to £100,000 in one or more SEIS qualifying companies in each tax year, with the option to carry back one tax year if there is spare capacity. A company can raise up to £150,000 under SEIS. A company cannot issue SEIS shares after EIS shares have been issued.
How much can you invest under EIS?
An individual can invest up to £1 million in one or more EIS qualifying companies in each tax year or up to £2 million if at least £1 million is invested in knowledge-intensive companies, with the availability to carry back one tax year if there is spare capacity. A company can raise up to £5 million in aggregate under the venture capital schemes representing SEIS, EIS and VCT investment in any rolling 12-month period. This annual limit is increased to £10 million if the company is a knowledge-intensive company.
A company can raise up to a lifetime limit of £12 million under venture capital schemes including SEIS, EIS and VCT. This lifetime limit is increased to £20 million if the company is a knowledge-intensive company.
How do I claim EIS tax relief?
Once the qualifying shares have been issued to the relevant individuals, a formal claim must be submitted to HMRC in an EIS 1 form containing the relevant share issue details and qualifying investor information.
On the basis that a formal claim is accepted, HMRC will then issue an EIS 2 authority for the share issue including a unique investment reference with EIS 3 certificates, which can be completed and passed on to the relevant individuals. These individuals can claim tax relief via their self-assessment tax return once in possession of the EIS 3 certificates.
How does SEIS/EIS CGT relief work?
The disposal of EIS qualifying shares will be exempt from CGT if they are held for the minimum relevant three year period, and all qualifying conditions are satisfied by the company and the investor. In addition, the tax payable or part of it on other gains can be deferred by reinvesting the part or all of the gain in EIS qualifying shares, usually until the EIS shares are disposed of. If the relevant EIS shares were sold at a loss, the capital loss less the up-front income tax relief already given and not withdrawn would be available to offset against taxable income in the current or prior tax years.
Similarly, the disposal of SEIS shares will be exempt from CGT if they are held for the minimum relevant three year period, and all qualifying conditions are satisfied by the company and the investor. There is no CGT deferral relief under SEIS, but up to half of the gains arising on the disposal of other assets can be permanently exempted from CGT if all or part of the relevant gain is reinvested in one or more SEIS companies. Loss relief is similarly available as appropriate for SEIS investments.
The SEIS/EIS qualifying shareholding should also attract business property relief at 100% for inheritance tax purposes after a period of two years’ ownership.
Can overseas companies qualify for investment under the venture capital schemes?
The relevant company must have a UK fixed place of business in order to satisfy the ‘permanent establishment in the UK’ condition. If the relevant company is not incorporated in the UK, this condition can be satisfied through the establishment of a UK branch of the overseas company at Companies House. It is therefore possible for overseas companies to qualify for investment under the venture capital schemes.
Can directors qualify for tax relief?
An individual who is a director of the company cannot qualify for EIS income tax relief except in limited circumstances; however, directors can qualify for SEIS relief. Employees who are not directors of the relevant company or its subsidiaries cannot qualify for SEIS or EIS relief under any circumstances.
Can listed companies qualify for investment under the venture capital schemes?
A listed company cannot qualify under the venture capital schemes. The company must be unquoted. This includes AIM listed companies.