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Seed enterprise investment uplift
Government's Growth Plan includes proposed upgrades to SEIS
The government’s September Growth Plan contained some significant upgrades to the seed enterprise investment scheme (SEIS), with proposals set to come in from 6 April 2023. The changes aim to help companies raise money and attract talent.
The combined SEIS income tax and capital gains tax (CGT) reliefs can save an investor up to 64% on their tax, with a shareholding subsequently sold at a profit free of CGT. And should a SEIS investment fail, the loss can qualify for further tax relief.
Proposed changes
The government proposals are:
- The annual investment limit for investors is to be doubled from £100,000 to £200,000, with income tax relief of 50% given on this amount. This is subject to having sufficient income tax liability to absorb the relief, although relief can always be carried back one year.
- The current maximum that a company can receive through SEIS investments is £150,000. This limit is to be raised to £250,000.
- To raise funds under the SEIS, a company must meet various conditions. These include trading for less than two years, with gross assets not exceeding £200,000. The two-year limit will be raised to three years (it doesn’t matter when the company was actually incorporated), with the gross asset limit rising to £350,000.
A company must also have less than 25 full-time equivalent employees at the time SEIS shares are issued, but this limit is not changing.
Employees and directors
Employees cannot invest in their employer company, but directors may be able to do so.
For directors to qualify, they cannot have a substantial interest in their employer company. Explained basically, a substantial interest is defined as a shareholding of more than 30%, and – since shareholdings of close relatives are included – it’s unlikely that a family-owned company will qualify.
Although the changes are not coming in until April 2023, companies can start to line up investors and obtain HMRC clearance. It is even possible to take money from investors now under an advance subscription agreement.
HMRC’s guidance on using the SEIS to raise money for your company can be found here.
If you have any questions around share schemes and tax planning please contact us.