In recent correspondence HMRC have indicated that loss relief (at a rate of 50%) could be available in addition to the main income and capital gains tax breaks. This means that an additional rate tax payer could receive total tax relief of 103% (or 100.5% after the tax rate is reduced to 45% in 2013/14) on an SEIS investment.
The total tax breaks could be:
- Income tax relief of 50% of the amount invested regardless of investor’s marginal tax rate
- Exemption from CGT on proceeds of the sale of other assets during the 2012/13 tax year to the extent that the gain is reinvested in a SEIS company
- Exemption from CGT on the proceeds of the sale of a SEIS investment
- Loss relief at a rate of 50% on losses on the investment which has not already received income tax relief. So on a SEIS investment of £100,000 (the maximum permitted each tax year) you could receive:
- £50,000 as a reduction in your income tax liability (this could be split over the current and preceding tax year),
- you could exempt £100,000 of capital gains by reinvesting in a SEIS, saving £28,000 of CGT,
- and finally you could offset £50,000 of losses (if the investment completely failed) against your income tax liability, potentially saving a 45% taxpayer £22,500.
Giving total tax relief of £100,500 on a £100,000 investment.
For individuals with large gains raised this tax year who have an income tax liability to offset a SEIS against, this can mean an investment where no net financial loss is possible when loss relief is accounted for.
The main qualifying conditions for SEIS investments give them extremely high risk exposure to very small UK companies. The criteria are:
- Investors cannot control, the company receiving their capital
- The business must be a UK company
- The company must not employ more than 25 workers
- The company must be a start up business
- The company must have assets of less than £200,000
- The company has to trade in an approved sector – generally not in finance or investment, for example, a property company cannot raise capital as a SEIS.
Divisional Director - Financial Planning
Disclaimer: SEIS investments are extremely high risk and tax benefits are based on very specific personal circumstances. Furthermore, tax allowances and current legislation is subject to change.