HomeInsightsSeed Enterprise Investment Scheme (“SEIS”)


+44 (0)20 7612 9612


The new scheme will:

  • give income tax relief at a rate of 50% of the amount invested by an individual (regardless of marginal rate) with a stake of less than 30% in a company, including directors (but not employees (other than previous employees));
  • afford capital gains tax exemption for gains arising on the disposal of other assets in 2012/2013 if they are re-invested through SEIS in the same tax year. Thus, overall tax relief of 78% can be achieved by SEIS investment;
  • apply to subscriptions of shares issued on or after 6 April 2012 (until 2017);
  • have an annual limit of £100,000 per investor with carry back to the previous year of unused amounts;
  • have a limit of £150,000 on SEIS funds raised by a company, as a cumulative total limit taking into account the SEIS investment then being raised and any other SEIS investment into the company in the 3 years to the date of the investment;
  • apply to early stage companies carrying on, or preparing to carry on, a new business in a qualifying trade;
  • be available to “small” companies – i.e. which do not have gross assets in excess of £200,000 immediately before the SEIS issue, nor more than 25 employees; and
  • be available to a single company or a group.

The income tax relief will be reduced or withdrawn if the SEIS investor sells his shares within 3 years.
As indicated, in addition to the 50% income tax relief, the scheme will provide a CGT holiday for the tax year 2012-13 only: gains realised on disposals of assets in 2012-13 that are re-invested in an SEIS company in the same year will be exempt from CGT. Moreover, disposals of SEIS shares which have been held for the requisite three year period will be exempt from CGT.

If a capital loss is realised on the disposal of the SEIS shares, the investor may claim this loss (net of income tax relief) against income tax for that year or the preceding year.

Requirements for SEIS Investor

Substantial Interest/Connection: An investor cannot be connected with the SEIS company – i.e. broadly he cannot own (or be entitled to own in the future) more than 30% of the ordinary shares/votes/issued share capital or rights which would give him 30% of the assets of the company on a winding up, nor must he be able to control the company.

Directors: Individuals who are directors or previous employees can be investors (but an existing employee cannot qualify unless also a director). SEIS investors must not subscribe for the shares as part of a wider arrangement which includes somebody else subscribing for shares in a company in which the investor has a substantial interest. There must be no loans to the investor which are linked to their subscription for shares.

New Qualifying Trade

The funds raised must be for the purpose of a NEW qualifying trade carried on by the SEIS company or its qualifying 90% subsidiary – i.e. a genuine new venture. A new qualifying trade is one which is less than 2 years old (and it can be one which is transferred to the SEIS company). Unlike with the Enterprise Investment Scheme (EIS), there is no requirement that the trade must actually be started within any specified time period, just that the ultimate intention is to trade. Thus, the relief may be useful in exploratory projects (e.g. film development or games/app creation). (Note that in EIS the investor is only entitled to claim tax relief once the EIS company has been trading for 4 months – there is no such requirement in SEIS – see below “Spending of Funds Raised”.)

Throughout the period of 3 years from the SEIS issue, the company must exist wholly for the purpose of carrying on the new qualifying trade(s) (or be the parent company of a qualifying trading subsidiary/group) although if not actually trading it can be preparing to trade or doing R&D. Qualifying trade has its restricted EIS meaning i.e. no asset backed, financing etc. trades. Licensing intellectual property and receiving royalties is expressly allowed provided the SEIS company created at least half the value of the relevant IP.

Spending of Funds Raised

The money raised must be employed on the qualifying business activity within the 3 year period (save that insignificant amounts can be spent on other purposes or remain unspent). No SEIS tax relief can be claimed until 70% of the SEIS funds have been spent. Before an SEIS company can raise EIS funding, it must have spent at least 75 % of any SEIS monies it raised.

Other Requirements for SEIS Company

The shares which qualify for SEIS relief must be ordinary shares fully paid up in cash. Shares carrying certain preferential dividends are also permitted. Shares can carry votes or be non-voting.

An SEIS company cannot have raised any previous funding under the EIS or VCT regimes.

As with EIS, the SEIS company must be unquoted, independent (i.e. not a 51% subsidiary or otherwise under the control of another company), have a UK permanent establishment and not be carrying on the trade in partnership. The SEIS company must not be in financial difficulties. The SEIS company can have subsidiaries. There must be no arrangements underwriting the equity risk or pre-arranged exits (e.g. loans/repayments/abnormal dividends).

There are the usual prohibitions on value received by shareholders. Moreover, SEIS tax relief will be withdrawn/reduced if within the 3 year period:

  • the shareholder acquires a substantial interest in an SEIS company;
  • the company loses its qualifying status; or
  • the investor disposes of his shares (including through options), but death is excluded!
Anti-avoidance Rules

The Finance Bill includes the anti-avoidance provisions announced in the December 2011 Pre-Budget Statement. The aim of these anti-avoidance rules, which will apply equally to SEIS and EIS, is to outlaw contrived, artificial arrangements where existing trades are hived off simply to access the tax reliefs, or used to route EIS/SEIS funds through a company lacking substance or risk.
To counter abuse HMRC are not, as they threatened last Summer, introducing a test based on a minimum number of employees or tainting characteristics to stop non-commercial trades and schemes, but rather a new disqualifying purpose test. The test will disqualify shares which are issued subject to arrangements whose main purpose is to generate access to the reliefs in circumstances where either:

  • the benefit of the investment is passed to another party to the arrangements (or to a connected person); or


  • absent the arrangements, it would be reasonable to expect that the business activities would otherwise be carried on by another party to the arrangements.

“Arrangements” is very widely defined and can include any agreement or understanding, whether or not legally enforceable.

Wiggin LLP has considerable expertise in setting up EIS and SEIS schemes acting for both investors and the EIS/SEIS company. Our advice ranges from obtaining HMRC pre-clearance to structuring the arrangements (including all necessary documentation) and establishing EIS Funds – whether HMRC approved or not (including all regulatory aspects) The EIS/SEIS group works closely with the film/TV/film financing group to maximise opportunities.

If you require advice or have any queries please contact Sue Crawford (E: sue.crawford@wiggin.co.uk; T: +44 (0) 1242 631329) or your usual contact at Wiggin LLP.