The Seed Enterprise Investment Scheme (SEIS) was launched in April 2012 with the intention of boosting investment in UK start-up companies. Since the scheme launched over 2,000 companies have benefited from SEIS investment of over £175 million. The scheme offers attractive tax reliefs with the intention that investors provide finance for higher-risk and relatively unproven companies that might otherwise struggle to access finance.

Tax Reliefs

Investors may claim relief against income tax at 50 percent of the cost of shares subscribed for, up to an annual investment limit of £100,000. A full exemption from capital gains tax on a disposal of shares is also available. Both these reliefs apply provided the shares have been held for a minimum period of 3 years. Relief for capital losses on disposals, deferral relief and business property relief are also available.

The Conditions

SEIS funds must be invested in companies that carry on a “qualifying trade”, which includes most trades provided they are conducted on a commercial basis, with a view to making profits and do not include a substantial amount of excluded activities such as property development, farming, leasing, dealing in land, shares and/or commodities etc.

The company receiving the investment must also meet certain other conditions at the time of issue of the shares. These include (amongst others):

  • The “gross assets” test under which the value of the company’s gross assets must not exceed £200,000 immediately prior to the share issue;
  • The “independence” test, meaning that the company is not a 51 percent (or more) subsidiary of another company or under the control of another person at any time prior to the third anniversary of the share issue;
  • The company must be no more than 2-years-old;
  • The company must have a UK-permanent establishment;
  • The company must not employ more than 25 employees;
  • The company not raising more than £150,000 via SEIS in any three year period; and
  • The company cannot have previously received Enterprise Investment Scheme (EIS) or Venture Capital Trust (VCT) funding.

There are a number of conditions relating to the investor that must be satisfied as well for the SEIS reliefs to apply. These include (amongst others):

  • The requirement that the investor does not hold more than 30 percent of the company’s issued share capital;
  • The investor not being an employee of the company (or any of its qualifying subsidiaries) during the three year period commencing on the date of subscription for the shares (the investor may however be a director);
  • The investor must hold the shares for a period of three years and the shares must be paid up in cash when they are issued; and
  • The shares subscribed for by the investor must be “full risk” shares that are not redeemable or carry any preferential rights to the company’s assets on a winding up.

Two Tranches

Most funding rounds that exceed £150,000 in amount are typically split across two tranches. This is due to the requirement that at least 70 percent of any funds raised under SEIS must have been spent before any EIS or VCT funds are raised. The EIS funds are therefore usually retained in escrow and then released as soon as 70 percent of the SEIS monies have been spent by the investee company.


Over the summer the government launched a consultation on tax advantaged venture capital schemes to ensure the rules are consistent with new EU state aid rules and also to ensure that that they are effective and targeted at the right companies looking for capital.

The government is also keen to explore options for the tax reliefs to apply where investments are made in the form of convertible loans. Although the government is of the view that tax reliefs should only apply to equity investments into high-risk commercial ventures, the government recognises at the same time that it can be difficult and time-consuming to value and purchase shares in companies in the early stages of their development and that some companies are being deprived of start-up capital as a result. Allowing investments in start-ups via a convertible loan would at least allow valuations to be deferred until a clearer picture emerges.