The benefits of SEIS and EIS investments

May 22, 2021

<![CDATA[ As businesses look to grow, external investment is often turned to by businesses through the provision of extra capital to fund growth plans. However, many external investors are reluctant to invest in a business unless and until they fully understand the consequences of doing so, which includes the taxation impact of the investment. The Enterprise Investment Scheme (“EIS”) and the Seed Enterprise Investment Scheme (“SEIS”) are tax-efficient government-backed schemes which allow qualifying businesses to fundraise from investors who are tax-resident in the UK.

What is EIS and what are the benefits of it?

EIS was initiated in the mid 90’s to encourage individual investors to invest in small, higher-risk trading companies to help alleviate and deter any problems that smaller, high-risk trading companies have in raising equity finance. EIS is designed to give investors, who subscribe for shares in a business, tax relief on their investment. Investors can claim income tax relief for amounts used to subscribe for new shares in a company, up to an annual investment limit of £2 million for shares issued on or after 6 April 2018 provided over £1 million is invested in knowledge-intensive companies. There are several criteria for a business to qualify as being a knowledge-intensive company, one such criteria being that in at least one of the relevant three preceding years, at least 15% of operating costs of the company consisted of research and development or innovation (R&D) expenditure. In such circumstances, the income tax liability of the investor is reduced by 30% of the sums invested up to the annual investment limit, on the basis the shares are held for at least three years. Additional tax reliefs are potentially available for EIS investors qualifying for some income tax relief on shares, in that exemption from CGT on a disposal of those shares is potentially available provided the shares have been owned for the requisite three years. To ensure qualification is met, companies and investors alike can seek advance assurance from HMRC that EIS applies.

What is SEIS and what are the benefits of it?

Similar to EIS, SEIS is aimed at start-up companies and individual investors who are looking to make equity investments in a start-up company. Investors can claim income tax relief, up to an annual investment limit of £100,000, for funds used to subscribe for new ordinary shares issued by qualifying companies (again, there are several criteria to meet). The investor’s income tax liability is reduced by 50% of the sums invested, up to the annual investment limit (for each investor), provided the shares are held for three years. Further, a SEIS investor whose income tax liability has reduced because of SEIS relief on shares is also potentially entitled to exemption from CGT on a disposal of those shares, on the basis that the shares have been held for three years. Again, to ensure qualification is met, companies and investors alike can seek advance assurance from HMRC that EIS applies.

How can we help?

If you are seeking investment through the EIS or the SEIS route or looking to invest in the same manner, our corporate team can guide you through the entire process. Our expert corporate team will support you in preparing all the documents you need in order to implement the EIS or SEIS investment, which may include a subscription agreement, new Articles of Association and corporate ancillary documents. Please contact a member of our corporate team for further help: Yavan Brar: 07971 588 364 Matthew Lea: 0118 989 8155; or Chris Gemson: 07799755934 This article reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter. The Seed Enterprise Investment Scheme (“SEIS”) and the Enterprise Investment Scheme (“EIS”) are tax-efficient government-backed schemes which … Read more >

By Yavan Brar

Managing Partner, Head of Corporate & Commercial Law

Latest Articles & Legal Insights

Sign up

Enter your email address for legal updates on Corporate and Commercial law.

<!–

Award winning legal advice

We are solicitors in Camberley, Wokingham and London. In 2019, Herrington Carmichael won ‘Property Law Firm of the Year’ at the Thames Valley Business Magazines Property Awards, ‘Best Medium Sized Business’ at the Surrey Heath Business Awards and we were named IR Global’s ‘Member of the Year’. We are ranked as a Leading Firm 2020 by Legal 500 and Alistair McArthur is ranked in Chambers 2020.

Awards | Accreditations

<!–

London

60 St Martins Lane, Covent Garden, London, WC2N 4JS +44 (0) 203 755 0557

Camberley

Building 9, Riverside Way, Watchmoor Park, Camberley, Surrey. GU15 3YL. +44 (0)1276 686 222

Wokingham

Opening Soon +44 (0)118 977 4045

info@herrington-carmichael.com

Herrington Carmichael LLP is authorised and regulated by the Solicitors Regulation Authority.

Privacy | Terms and Conditions | Cookies | Client Feedback >

Yavan Brar

Managing Partner, Head of Corporate

<script>
document.addEventListener('DOMContentLoaded', function () {
  const deptEl = document.getElementById('acf-author-department');
  const department = deptEl?.dataset?.department;

  if (typeof gtag === 'function' && department) {
    gtag('set', { author_department: department });
  }
});


  window.dataLayer = window.dataLayer || [];
  const dept = document.getElementById("author-department")?.textContent?.trim();
  if (dept) {
    window.dataLayer.push({
      event: "authorDataReady",
      author_department: dept
    });
  }

</script>

View profile Contact Us

This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.

Latest Legal Insights

Dealing with the death of a loved one is emotionally taxing, and when the thought of having to deal with…
A recent Employment Tribunal case has underlined the importance of making reasonable adjustments, particularly for neuro diverse employees.
Learn how the Sentebale case highlights key charity governance failures and what trustees can do to strengthen compliance and public…
Advance care planning is about preparing for the possibility that you or your loved ones may need care in the…
Forget the custody myth - discover how family courts in England and Wales focus on child welfare, shared care, and…
The rapid advancement of artificial intelligence (AI) has significantly impacted various industries, including the legal and financial sectors.

Best Law Firms 2024

Herrington Carmichael has once again been named in the Times Best Law Firms. We were first listed in 2023 and have once again made the Best Law Firms list for 2024.

www.thetimes.co.uk/article/herrington-carmichael

BUSINESS

PERSONAL

PEOPLE