According to fund managers, flows of new money into the Seed Enterprise Investment Scheme (SEIS) have surged in the last two months after Labour won the general election.
The SEIS is a government-backed scheme that gives investors very generous tax reliefs when they invest in early-stage UK companies. It's likely that the surge in SEIS investment has been partly driven by fears of Budget tax increases. With rumours of capital gains tax (CGT) and other tax rises hitting higher earners, SEIS is one of the most tax efficient vehicles available.
SEIS investors get up to 50% income tax relief and 50% CGT relief which could mean a £100,000 investment could cost as little as £48,000. Any future gains on a qualifying sale of the shares may also be CGT free.
The news is very positive for UK startups and the economy generally. Perhaps a sign that appetite to invest in very early-stage businesses might be picking up again.
Since the election everyone has been expecting tax rises, with wealthier investors ("those with the broadest shoulders") set to bear the brunt. SEIS is a hugely tax efficient way to invest and provides a cushion for those who take the potential investment risk.
Another factor driving investment is the certainty about the future of the scheme – the extension of the SEIS/EIS/VCT scheme to 2035 was confirmed by the Treasury last week.
As ever, the tax rules are complex and professional advice should be sought on this aspect as much as the suitability and risk of the investment itself.
Peter Nichols - BFN Accounts & Tax
12 September 2024