In the mini budget, the UK government announced an increase in the existing limits that apply to Seed Enterprise Investment Scheme (SEIS) tax reliefs. The Bill has now received Royal Assent and the legislation has been enacted and effective for share issues on or after 6 April 2023.
What is SEIS relief?
SEIS is a government-backed tax scheme designed to encourage individuals to invest in high-risk, early-stage companies by providing investors with tax incentives in the form of income tax and capital gains tax reliefs.
Investors can claim up to 50% of the income tax relief on their subscription for qualifying SEIS shares and get a CGT free exit.
The scheme is to promote investment in startups and help them raise the capital they need to grow and develop.
New changes to SEIS rules and their implications
The following amendments have been made to SEIS scheme with effect from 6 April 2023:
- Increase in the SEIS funding limit – the companies are able to raise up to £250,000 of SEIS investments (previously the limit was £150,000), allowing companies to benefit from additional SEIS funding.
- Increase in gross asset limit – in order to qualify as a SEIS company, the gross assets must not exceed £350,000 immediately before the share issue (previously the limit was £200,000).
- Extension to eligibility period – the company must be a ‘new qualifying trade’ which must be less than 3 years old, providing more companies the opportunity to benefit from the scheme and for a longer period (previously this was defined as 2 years).
- Increase to annual investor limit – individuals are now able to invest up to £200,000 (from £100,000) in SEIS companies and obtain SEIS income tax relief provided that qualifying conditions have been met.
These amendments are positive and beneficial for both the companies and investors. With the Bill now receiving Royal Assent, HMRC will now approve SEIS certificates relying on newly extended limits. Up until now, HMRC were not able to process forms or provide advance assurance on investments which were relying on the amendments to be qualifying.
If a company had previously hit the £150,000 limit but has not raised any funding through EIS or VCT, it can now raise an additional £100,000 under SEIS. If, however, a company has raised EIS or VCT funding no further SEIS relief can be obtained despite the increased limits.
If you require any advice on qualifying conditions for SEIS or require any assistance with Advance Assurances or SEIS certificates, please contact us for a chat at email@example.com or contact one of our Entrepreneurial Tax team.