SEIS tax boost for investors bank rolling risky start ups

The Seed Enterprise Investment Scheme is like BBC TV’s Dragon’s Den for firms that need cash but cannot go to the banks.

Entrepreneurs can pitch their businesses to wealthy investors, who will pick up enhanced tax relief for their investment.

SEIS is a souped up version of the longer running Enterprise Investment Scheme for start-ups put together on the basis of the higher the risk, the higher the tax relief for investors.

The scheme starts on April 6, 2012, as part of the revamp of the EIS and Venture Capital Trusts (VCT).

A SEIS will attract the interest of a smallish band of wealthy investors looking to put a small part of their portfolio in to enterprises that could trigger exceptional returns – but be warned even the TV Dragons are feeling the heat from the current economic turmoil.

Gym and hotel millionaire Duncan Ballantyne recently remarked his businesses are feeling the pinch from customers cancelling subscriptions to his gym clubs, hitting cash flow and profits.

He added that although his Dragon investments were a “very small” part of his business group, they were having “similar problems”.

“None of them are doing great,” he said.

When SEIS kicks in, Ballantyne and other high-risk business sponsors can benefit from:

  • Income tax relief at 50% of the investment in qualifying companies, regardless of their marginal tax rate
  • Investors have an annual SEIS limit of £100,000 each
  • A £150,000 investment cap per company applies for cash inputs over more than one financial year
  • Reinvested chargeable gains against other assets are exempt from capital gains tax disposals if they are reinvested in a SEIS within the same tax year.

Bill Dodwell, head of tax policy at Deloitte, said: “The enhanced rate of relief reflects the inherently risky nature of small start up companies and has been estimated to cost the Exchequer £50 million in the first year and lower amounts in later years, when capital gains relief drops away.

“Tax relief at up to 78% in the first year will make SEIS an attractive option for individuals who wish to invest in start up companies.”