The Seed Enterprise Investment Scheme, usually called SEIS, is a tax relief scheme for qualifying UK tax-paying individuals who invest in qualifying early stage UK startups. It is related to the enterprise investment scheme (EIS) and in many ways the same the same, except that it is aimed at earlier stage startups in smaller rounds (operating less than two years, max of £150k eligible for SEIS relief).
For the purposes of this, imagine you’ve made an investment into Unicornly, the startup that helps other startups become £1bn businesses. You invest £10,000 at a £10m valuation.
You will receive tax relief of £5000, or half of what you invested in Unicornly through the scheme. This is true of every SEIS investment you make that year up to a total of £100k invested. Tax relief is a deduction against your income tax for that year (or the prior year if you have not used up your £100,000 annual allowance for the prior year)
Unicornly gets acquired at a £20m valuation 3 years or more after your investment
You’ve now doubled your investment and it is liquid. Since you’ve held your shares for over 3 years, you pay no capital gains tax. Plus you still keep the initial tax relief you got in the first year of £5000. So, your initial £10k investment has now produced a return of £25k.
Unicornly gets acquired at a £10m valuation 3 years after your investment
They didn’t live up to their promise and thus have stagnated. They are acquired by a competitor and you receive your initial investment back and keep the initial tax relief. Thus, your initial £10k investment has produced a return of £15k.
Unicornly fails completely
They couldn’t make it work, and so the company stops trading. In addition to the initial 50% tax relief, you receive additional loss relief of 50% your initial investment multiplied by your tax rate. So (assuming you are a higher rate 45% income tax payer) you receive in aggregate, through income tax deductions, a total of £7250 against your original investment of £10k.
SEIS Frequently Asked Questions
What is the maximum I can invest under SEIS?
The max you can invest through SEIS in a given tax year is £100k.
Can I invest in multiple companies?
Yes you can spread your investment across multiple qualifying companies.
Do investments in Autopilot qualify?
All investments through Autopilot will qualify for SEIS or EIS.
How do I know a startup qualifies?
Startups should apply for advanced assurance through HMRC to ensure they qualify. Autopilot will verify this for every opportunity on your behalf.
How do I claim my tax relief?
The startup will have to send your an SEIS3 certificate which will allow you to claim tax relief when you file your tax return.