What is SEIS?
The Seed Enterprise Investment Scheme (SEIS) gives investors 50% income tax relief on new shares in young UK trading companies, helping startups raise early money.
What SEIS means
The Seed Enterprise Investment Scheme encourages people to invest in very young companies by giving them generous tax reliefs. For investors, it offers:
- income tax relief of 50% of the amount invested, on up to £200,000 a year
- no Capital Gains Tax on any gain when the shares are sold, if they have been held for at least three years and income tax relief was given
- reinvestment relief, which exempts half of a gain reinvested in SEIS shares
- loss relief against income if the company fails
For the company, SEIS can be used to raise up to £250,000 in total. The company must be carrying on a new qualifying trade that started less than three years ago, have gross assets of £350,000 or less and fewer than 25 full-time equivalent employees, and have a permanent establishment in the UK. Some trades, such as property development and financial services, are excluded.
Example
An angel investor subscribes £20,000 for SEIS shares in a software startup.
| Outcome | Effect for the investor |
|---|---|
| Income tax relief at 50% | £10,000 off their tax bill, so the net cost is £10,000 |
| Company sold after three years for 3 times the price | £60,000 received with no Capital Gains Tax |
| Company fails instead | The £10,000 net loss can be set against income; at 45% that is worth £4,500, leaving £5,500 at risk |
Why it matters for your business
For founders, SEIS makes a first funding round far easier, because it cuts the investor's risk sharply. Most companies apply to HMRC for advance assurance before raising, so investors know the shares are likely to qualify. After the shares are issued, and once the company has traded for four months or spent at least 70% of the money, it files a compliance statement (SEIS1). HMRC then authorises SEIS3 certificates, which investors use to claim.
Investors must not be employees of the company or hold more than 30% of it, although unpaid directors can usually invest. SEIS shares must be issued before any EIS shares in the same company. Cloudkeepers can help with the advance assurance application and the paperwork afterwards.
Common questions
Usually not. Founders tend to hold more than 30% of the company or are employees, either of which rules them out. A founder who is an unpaid director and holds 30% or less, counting shares held by close relatives, may qualify, but the conditions are strict and worth checking first.
At least three years from the date the shares are issued, or from the start of trading if later. If they sell earlier, or the company stops qualifying during that period, the income tax relief can be withdrawn and the Capital Gains Tax exemption lost.