Income tax relief when a business ends, under SEIS and EIS

The Seed Enterprise Investment Scheme (SEIS) was introduced in 2012 to shake up tax incentives for investors. Gary Green explains how this scheme aims to encourage investments in new start-ups, whilst offering tax efficient benefits to investors.

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In 2012, the then Chancellor, George Osborne, launched the Seed Enterprise Investment Scheme (SEIS) to encourage investment in new start-ups. The scheme was made permanent in 2014.

For investors, the SEIS provides for extensive Income Tax and Capital Gains Tax breaks to encourage investment in new businesses, as follows:

  • Income Tax relief worth 50% under SEIS, or 30% under EIS, of the amount invested to qualifying individual investors on a maximum annual investment of £100,000 for SEIS or £1,000,000 under EIS; both annual maximums can be doubled in the first year due to being able to elect a one year carry back
  • Exemption from Capital Gains Tax on disposals of SEIS and EIS shares that have been held for three years
  • A 50% exemption from Capital Gains Tax on gains reinvested within the scope of the SEIS or CGT rollover relief under EIS
  • Availability of loss relief that can be set against the taxpayers’ income or capital gains, saving their effective income tax rate on the unrelieved amount of the investment
  • 100% Inheritance tax relief under business property relief after just two years

Normally, when an investment fails, then the loss will be treated as a capital loss. Not many people have taxable capital gains which can utilise these losses. However, through the (S)EIS scheme, HMRC will allow the investor to convert this capital loss into an income tax loss, which is far more easily offset against income like a salary.

Through SEIS and EIS, if the company is closed down or sold for a resulting gain, then this would not be taxable either.

About the author

Gary Green is Principal with SEIS tax specialists Key Business Consultants.

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