INVESTING IN START-UPS IN THE UK: DISCOVER THE TAX BENEFITS OF THE EIS AND SEIS SCHEMES

The UK offers two venture-capital tax regimes for individual investors (not companies):

1. Key Points at a Glance – SEIS vs EIS

• SEIS
• • Designed for very early-stage companies.
  • Income-tax relief: 50% of the amount subscribed.
  • Personal subscription cap: £200,000 per tax year (limit doubled from April 2023).
  • Minimum holding period for CGT exemption: 3 years.
• EIS
  • For early-growth companies (larger than SEIS targets).
  • Income-tax relief: 30% of the amount subscribed.
  • Personal subscription cap: £1 million, rising to £2 million where everything above £1 million is invested in knowledge-intensive companies (KICs).
  • Minimum holding period for CGT exemption: 3 years.

2. Seed Enterprise Investment Scheme (SEIS)

• Investor reliefs
  • 50% income-tax relief on up to £200k per tax year.
  • No Capital Gains Tax (CGT) on gains after three years.
  • Re-invested capital gains can be sheltered.
  • Loss relief available if the start-up fails.
• Company requirements
  • May raise up to £250k lifetime under SEIS.
  • Gross assets must not exceed £350k pre-investment.
  • Fewer than 25 full-time employees.
  • First commercial sale must be ≤ 3 years before the share issue (extended in 2023).

3. Enterprise Investment Scheme (EIS)

• Investor reliefs
  • 30% income-tax relief on up to £1m (or £2m if excess goes into KICs).
  • CGT exemption after three-year holding period.
  • CGT deferral relief available on other gains reinvested.
  • Loss relief if the company under-performs.
• Company requirements
  • Standard firms: may raise ≤ £5m in any 12-month period; £12m lifetime cap.
  • Knowledge-intensive companies: ≤ £10m per 12 months; £20m lifetime cap; up to 500 employees.
  • First commercial sale must be ≤ 7 years old (≤ 10 years for KICs).
• Scheme duration
  • The EIS (and VCT) “sunset clause” has been extended to 6 April 2035.

4. Common Risk Considerations

• Shares are illiquid; selling before three years normally cancels tax reliefs.
• Tax benefits depend on both investor and company maintaining qualifying status.
• Investing in start-ups is high-risk; capital is at risk and returns are uncertain.

5. Process Outline

• Confirm personal eligibility (individual UK income-tax payer).
• Company may obtain HMRC advance assurance.
• Investor subscribes for new ordinary shares, fully paid in cash.
• Company issues an SEIS 3 or EIS 3 certificate.
• Investor claims relief through self-assessment; CGT reliefs applied on disposal or reinvestment.