SEIS / EIS Relief Benefits

The Enterprise Investment Scheme (EIS) has been designed by the Government to encourage private investment into small high risk trading companies by offering a range of tax incentives.
Providing the underlying investments made by the EIS are held for at least three years (for Income Tax relief and tax free growth), the current tax reliefs available for investors are:

30% Initial Income Tax relief up to maximum investment of £2 million (any amount
above the first £1m must be invested in knowledge-intensive companies), which can be carried back to the previous tax year
100% Inheritance Tax relief (provided the investments have been held for at least 2 years at time of death)
Capital gains tax deferral relief  for the life of the investment
Tax-free growth
Tax relief from investment losses

Seed EIS Benefits:

50% Initial Income Tax relief up to maximum investment of £100,000
100% Inheritance Tax relief (provided the investments have been held for at least 2 years at time of death)
50% Capital gains tax re-investment relief
Tax-free growth
Tax relief from investment losses

Please click here to see infographic shows EIS vs SEIS

EIS

30% Initial Income Tax Relief

The Enterprise Investment Scheme comes with a personal income tax relief of 30% of the cost of the shares purchased in an eligible EIS scheme. This income tax relief can be applied to the existing tax year or to one year prior income tax liability. With up to £1 million available for investment, this could mean a £300,000 income tax offset. You can only take relief up to your total tax liability in one given year; extra relief will be lost if applied to a year that cannot use all the relief.

100% Inheritance Tax Relief

Once your Contributions have been invested in EIS or SEIS shares for two years they’re likely to be 100% free of IHT. This is because, in most cases, EIS and SEIS Shares should qualify as “relevant business property” for Business Property Relief purposes.

When the Shares are sold the cash proceeds will cease to qualify for BPR, however if you reinvest the proceeds from the EIS or SEIS Shares they should then qualify for Replacement Property Relief, which means that the two year holding period is applied to the combined holdings. See the Glossary for more details.

Please note that these reliefs from IHT only apply if the shares are still held at your death and that they still meet the qualifying rules. The relief will not apply if you hold the shares for two years and then sell them for cash. However, if you die in the two year period and your spouse inherits the EIS/ SEIS Shares, the holding periods of both you and your spouse are combined in order to determine whether the two year holding period condition has been satisfied on the subsequent death of your spouse

Capital Gains Tax Deferral Relief

This refers to the deferral of capital gains on another investment by investing the proceeds into an EIS. There is no minimum or maximum amount for CGT deferrals, although the maximum investment in an EIS in any given year is limited to £1 million for income tax relief, there is no limit to the amount of Capital Gains Tax Deferral that you can claim. The gain can be from any asset, but must be invested the year prior to the gain up to 3 years after the gain to get the CGT deferral. This allows up to a 4 year window for making the decision.

Tax Free Growth

You receive exemption from capital gains tax on the disposal of EIS and SEIS Shares, provided you have held them for at least three full years from investment, or from when the Investee Company started trading, if later. If no claim to income tax is made, then any subsequent disposal of the shares will not qualify for exemption from CGT

Tax Relief from Investment Losses

If you take a loss on any shares in an EIS, that loss minus any Income Tax Relief received can further be applied against your income for that year or the previous year, lowering your overall income and providing further income tax relief. If you bought shares at £10,000, received £3,000 Income Tax Relief but they became worthless as the company failed, you would be eligible for a £7,000 deduction against your income.

SEIS

50% Initial Income Tax Relief

Similar to the EIS the SEIS provide an income tax relief at a larger portion of the investment; currently 50% subject to having paid sufficient income tax. However the maximum amount that can be invested in an SEIS is £100,000, so the maximum Income Tax Relief amount in any given year from a SEIS is only £50,000.

100% Inheritance Tax Relief

Providing that the shares of the SEIS investment has been held for at least 2 years at the time of death, all SEIS investment are shielded from Inheritance tax; which currently stands at 40%. If your investment grew substantially it can be a significant relief.

50% Capital Gains Tax Re-Investment Relief

When you realize a Capital Gain and reinvest the proceeds into an SEIS, 50% of what is reinvested is eligible for a CGT Re-investment relief allowing you to write off 50% of the gain. You can elect to have this applied to gains in the previous tax year which is known as Carry Back.

Tax Free Growth

While the investment grows within the SEIS, it is shielded from capital gains taxes providing you have received some income tax relief on the investment.

Tax Relief from Investment Losses

The same Loss Relief is available on SEIS as is available on EIS.

Articles about tax relief:

New EIS 2015 rules – introduced by HMRC in April 2015.
Income tax relief
Capital Gains Tax
Inheritance Tax
EIS Loss relief

Official information Sources:
https://www.gov.uk/government/publications/the-enterprise-investment-scheme-introduction/enterprise-investment-scheme
https://www.gov.uk/guidance/seed-enterprise-investment-scheme-background