There is a great new scheme in town and it’s called the Seed Enterprise Investment Scheme (SEIS). The changes were announced in the Chancellor’s Autumn statement and this is especially interesting if you’re a high rate tax payer, because from April 6th 2012 there are some fantastic tax breaks available.
At Eldingo, we’re always interested in hearing from investors of various sizes, whether they be VCs or Angels. We get investors involved early, as part of our business development process, let them familiarise themselves with the management team and follow the build and delivery cycle through to fruition. This means that we can get investment as the new businesses are ready, rather than starting another lengthy pitch cycle and put projects on hold while the money has been raised.
The normal target investments for round one are seed funds, ranging from £150k-£450k. At the low end of this target range, investors are eligible to invest under the Government’s SEIS scheme. This is particularly interesting for higher rate tax payers for five reasons:
- 50% Tax relief: Investors can receive a 50% tax relief in the tax year the investment is made, regardless of their marginal rate, provided they will own less than 30% of the company. There is an investment limit of £100k in any tax year.
- Capital gains exemption: In the 2012-13 tax year, tax payers can roll any chargeable gain in the tax year into a SEIS with a full capital gains tax exemption.
- Tax free gains: Provided the investment is retained in the company for 3 years, any gain or profit on the original investment will be 100% tax free.
- Large potential gains: As the SEIS scheme is designed for startup companies, any gain has the potential to be large as investors are getting in on the ground level.
- Relatively Low risk: The SEIS investments are very low risk. The potential downside as a high rate tax payer is only 25% of your original investment and could be even lower under some circumstances.
So, some great news for investors with this scheme making the investment conditions unprecedented in the market and should prove to be a new stimulus for startup businesses in the UK.
