The enterprise investment scheme (EIS) and seed enterprise investment scheme (SEIS) provide for equity investment into qualifying small companies that are seen to be ‘high risk’ to the investor.
The SEIS is a recent development for shares issued on or after 6 April 2012. It offers tax relief at a higher rate than EIS. This is a reflection that for very early stage companies, attracting investment without tax reliefs would be difficult. Whilst broadly based on the same rules and principles, there are a number of differences between the two schemes.
Income tax and IHT reliefs
EIS Ref. SEIS Ref. Income tax relief
at 30%ITA 2007,
s 158
VCM1010
0Income tax relief
at 50% ITA 2007,
s 257A Maximum annual
investment of £1m Maximum annual
investment of £100,000 Order of tax relief,
first EISITA 2007,
s 27 After EIS reliefs,
deduct SEISITA 2007,
s 27Carry back tax relief
in full to previous tax
year at the rate for the
earlier year Can carry back but no
SEIS rate for a year
earlier than 2012/13 IHT relief on shares
after two years IHT relief on shares
after two years
Income tax reliefs are more generous under the SEIS, but the annual investment allowed is ten times less than the EIS. You must have a tax liability to reduce otherwise the relief is lost, unless carried back to a previous tax year.
Capital gains tax reliefs
EIS Ref. SEIS Gain free from CGT
on disposal if you have
received income tax
relief and hold the shares
for three years VCM20000 Gain free from CGT on disposal
if you have received income tax
relief and hold the shares for
three years No CGT reinvestment
relief CGT reinvestment relief from the
2013/14 tax year at 50% for
reinvesting gains from the disposal
of assets in SEIS shares up to
£50,000. You must also claim
SEIS income tax relief to get
reinvestment reliefCGT deferral relief - the
gain arising from any
disposal is deferred when
investing one year before
and three years after gain
is made. Amount unlimited VCM22000,
23000 No CGT deferral is possible
If you dispose of shares before three years, then the gain is taxable. If you have not claimed income tax relief, the CGT exemption does not apply. SEIS reinvestment relief reduces CGT by 50% and is not a deferred tax. The EIS route does not offer reinvestment relief, merely CGT deferral.
General differences
EIS SEIS Small, unlisted company with 250
employees or less and maximum
gross assets of £15 million (before
investment, and £16 million after it) Very small unlisted company with up
to 50 employees and £200,000 gross
assets Amount to raise is unlimited (but
see above assets limit)Can only raise up to £150,000 EIS investment can follow SEIS
investment provided 70% of SEIS
cash is spentSEIS investment cannot be made after
an EIS investment or venture capital
trust investmentTax relief is available after trading
for four monthsNo tax relief until at least 70% of the
money raised is spent on qualifying
activities. Certification process differs
from EISSEIS investment cannot be made
after an EIS investment No EIS or VCT capital raising unless
70% of SEIS money spent
The above gives some of the main differences in approach and eligibility between EIS and SEIS.
Practical Tip:
- Invest into a company after it has been set up and qualifies – otherwise EIS and SEIS will not apply.
- Remember the order of tax liability reduction - VCT first, then EIS, then SEIS.
- The most generous tax reliefs are from SEIS, although the investment limits are much less than EIS.
- Be selective in how you invest to maximise your tax reliefs, including elimination of capital gains.
