Seed Enterprise Investment Scheme (SEIS) was originally introduced by the UK government back in 2012 to encourage investment into the UK start-up scene; to promote the growth of the startup ecosystem. The schemes’ main incentive for UK investors is its offers of 50% income tax relief on SEIS investments in UK startups up to £100,000 per tax year. In its first year of operation (2012-13), £84m was invested in 1,120 businesses; by July 2014, over 2,000 companies had raised over £175m through the scheme, according to report published by the British Business Bank.
Potential VCs UK syndicate is focused on early stage startup investing and SEIS offers our UK syndicate investors a great way to minimise their risk by up to 50% and more.
SEIS Investment Scenario:
Let’s run through a quick investment scenario to give you a visual picture of how an SEIS investment might work out for you.
- You decide to invest £5,000 in a startup and take a 1% share. The startup’s initial valuation for this round is £500,000.
- As you have invested £5,000 you now receive £2,500 in income tax relief under SEIS. This covers 50% of your initial investment so your capital at risk is only £2,500.
Startup exits for 10 times its original valuation:
- Your initial investment of £5,000 for a 1% share is now worth £50,000
Startup exits for 100 times its original valuation:
- Your initial investment of £5,000 for a 1% share is now worth £50,000,000
Considering that you had already received £2,500 from the 50% income tax relief on your initial investment of £5,000 in that tax year, your shares have grown from £2,500 that was put to work.
- 50% income tax relief on investments per investor for up to £100,000 per tax year
- Investors can get Capital Gain Tax (CGT) exemptions if they hold the shares for 3 years or more
- There is a typical 25% tax relief on failed investments, however this is dependent on your income tax bracket
- Investors can’t own more than 30% of the startup they are investing in
The above scenario doesn’t take into account share dilution and Potential VC do not provide tax advice. The information above is intended to provide an overview of the specific topic.
For more information visit; http://www.hmrc.gov.uk/
The tax relief available will depend on your individual circumstances and may be subject to change. If you are in any doubt about the tax treatment of your investment then you should consult a professional tax adviser prior to making any investment.
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