(Newswire.net — February 25, 2022) –If you’re an investor, then you’re always looking for new opportunities to grow your portfolio. Seed Enterprise Investment Scheme investments allow you to do just that, but with the added bonus of a host of attractive tax, reliefs to further sweeten the deal. Read on to find out more.
What is the seed enterprise investment scheme?
The Seed Enterprise Investment Scheme is a UK government scheme that offers tax reliefs and incentives to investors who put money into early-stage businesses. The scheme is very similar to the Enterprise Investment Scheme (EIS), with the main difference being that SEIS covers companies that are particularly early stage in their journey – to be precise, those employing up to 25 people, with assets of up to £200k.
Despite being in operation since 2012, many investors are unaware of the seed enterprise scheme tax reliefs associated with the scheme.
Seed enterprise investment scheme investments offer great tax reliefs.
Seed enterprise investment scheme tax reliefs are very generous
The tax reliefs available for Seed Enterprise Investment Scheme investments are very generous and can provide one of the most tax-efficient ways to invest capital.
With income tax relief of 50%, capital gains tax exemption, and inheritance tax exemption, investors can benefit from significant tax reliefs in addition to the potential for large capital uplifts. Here is a summary of the main benefits:
- 50% Income Tax Relief up to £60,000
The Seed Enterprise Investment Scheme offers 50% income tax relief on investments up to £100,000 per tax year. This incentive can allow investors to claim back up to £50,000 in tax relief per annum. In addition, SEIS carry-back relief can allow an investor to treat the investment as though it was made the year prior and claim 50% income tax relief for that year instead.
- Gains 100% exempt from CGT
The capital gains tax relief for SEIS investments funds means that any gain realized in the value of SEIS shares when they are disposed of is exempt from CGT. This means that investors do not have to pay any CGT on the gain, which can be a significant saving. This helps to maximize the returns that startup investments can generate.
- Halving the CGT due from any chargeable asset
One of the scheme’s lesser understood, but potentially most rewarding tax reliefs is SEIS reinvestment relief. This allows investors to reduce the CGT they’re due on any chargeable asset (outside of SEIS) by up to 50%, should this gain be reinvested into SEIS qualifying shares. This provides investors with the opportunity to halve the capital gains tax they pay when disposing of chargeable assets, ranging from stocks to property, to personal possessions worth more than £6,000.
- Negating the 40% IHT due on UK Estates
All SEIS investments funds are entirely inheritance tax-free, meaning investors can pass down the full value of their shares without the threat of being charged 40% IHT should their estate be valued over £325,000 (the UK’s current maximum IHT-free threshold). Additionally, because SEIS investments qualify for UK Business Property Relief (BPR), full inheritance tax exemption is unlocked for investors once shares have been held for at least two years (five years less than the minimum holding period required for many other IHT planning tools such as gifts or trusts).
Deciding if seed enterprise investment scheme investing is right for you
Making a decision about whether or not to invest in SEIS eligible companies is a personal choice. With high risk comes the potential for high returns, so if you’re comfortable with taking on more risk in return for the chance of a larger payout, SEIS could be a good option for you. However, remember to do your own research into each company before investing. There are many factors you should consider before parting with your hard-earned cash, such as the company’s sector and how comfortable you are with it, as well as the team behind the business.
If you decide that SEIS is right for you, remember that over £600m was invested into SEIS opportunities in 2016 alone. The tax reliefs offered to UK investors are also particularly generous, so your potential returns could be worth the risk.
In sum, if you are looking for a way to reduce your taxable income, adding SEIS investments funds to your portfolio may be the right choice for you. Please consult with an accountant or financial advisor to find out more about how SEIS investments can benefit you and learn about other tax-saving options that may be available to you.