Could seed scheme work for you?

 

In last year’s Autumn Statement, Chancellor George Osborne introduced the Seed Enterprise Investment Scheme (SEIS), which launches in April. It’s designed to encourage much needed investment funds for the type of small company on which the UK’s future growth depends.

 

From April 6, SEIS will enable individuals to claim income tax relief at 50% on investments of up to £100,000 in qualifying shares, regardless of the rate of income tax they pay. 

 

If the investment is financed by way of capital gains realised on a disposal of assets after April 6, they can also benefit from capital gains tax relief of up to 28%.

 

Putting the two tax reliefs together, an SEIS investment could benefit from an astonishing 78% tax relief. In other words, a £20,000 investment could cost only £4,400 after tax.

 

The same investment will also benefit from exemption from capital gains tax in future, if the shares are held for at least three years.

A canny investor might suspect that, with such generous tax reliefs, there must be some catches – and there are. 

 

There are qualifying requirements for the company to meet regarding its trading activity and size. In addition, the company can’t raise more than £150,000 by way of SEIS investments, which doesn’t seem particularly generous.

 

The investor must also satisfy certain conditions. For example, whilst he or she can be a director or employee of the company, they must not own more than 30% of its shares.

 

As with all such investments, the main consideration for investors must be commercial risk. Companies that qualify for SEIS will be small trading businesses with limited assets. That makes them higher risk for investors. Thus, whilst the SEIS offers very generous tax reliefs, potential investors should not be blind to the risk that any such investment will be speculative and they should only invest money they can afford to lose.

 

If SEIS might be of interest to you, or to your business, contact your current tax adviser or alternatively contact David Walker, Director of Tax, at Turner Peachey Chartered Accountants on 01743 273999.