SEIS, EIS & Venture Capital Advantages From a Tax Consultancy Perspective

26th September 2023

Private investing has long been a source of financial growth for private investors, often allowing individuals to stay in line with inflation over the course of several years or decades.

However, investing doesn’t come without risk. There is always a chance that investors could lose money on the market, and venture capital strategies are often met with potentially high returns, but also higher risk.

However, there are government-backed schemes that can help private investors leverage that risk and invest in start-up companies to help stimulate growth – read on to find out how you can benefit, too!

Please note: Edwards Accountants are not investment advisers, and this blog does not constitute investment advice. Investing of any kind involves risk and you are not guaranteed to get back the money you put in. Never invest more than you can afford to lose. Before undertaking or acting on anything you read within this blog, contact a specialist investment advisor.


What schemes can investors benefit from?

The two main ways that private investors help reduce the risk of their own venture capital strategies are through the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS). 

These two schemes are similar but do have one or two key differences, primarily in the types of businesses that you can invest in while still benefitting. 


Seed Enterprise Investment Scheme

The SEIS focuses on companies that are still in the very early stages of business development. To qualify, these companies must have been trading for less than three years and must have fewer than 25 employees. 

Private investors can invest up to £200,000 in qualifying businesses each tax year, though these companies cannot accept any more than £250,000 of SEIS funding in that time. 


Enterprise Investment Scheme

The EIS is there to stimulate investment for slightly larger-scale and established businesses, which have been trading for up to seven years and have fewer than 250 employees. Investors can invest up to £1 million per tax year using the EIS scheme, and each company can accept up to £5 million during that same period, up to £12 million total. 

Note that corporate investors do not get any tax relief on investments made through an EIS scheme. 


How do SEIS and EIS help investors?

A major pull of investing in the companies that these schemes cover, especially SEIS, is that the returns can sometimes be far higher than standard investments due to the nature of the companies you are investing in. 

If one or two of these new companies or start-ups hits an unprecedented level of growth, taking the industry to new heights and succeeding in its aims, they could provide extremely high returns. 

However, there are big risks to investing in new companies like this, namely that more than half will fail to trade for longer than three years. The SEIS and EIS step in to help reduce the level of risk and give investors more confidence in their investments. 


Income Tax relief 

When you receive your shares, you can claim Income Tax relief on the tax year of or the tax year before your investment. With SEIS, you can claim up to 50% of your investment back through Income Tax relief. With EIS, you can claim 30% of your investment back. 

This is the main incentive for wanting to use one of these schemes, as it reduces the amount of risk and potential loss an investor may suffer if the company they invest in fails. 

It is worth noting that you cannot carry any unused Income Tax relief forward. 


Capital Gains Tax exemption

When you invest privately using either SEIS and EIS and come to sell your shares, you will pay no Capital Gains Tax on profits, provided that: 

  • You have had the shares in your possession for at least three years
  • Any Income Tax relief that you’ve received on the investment has not been reduced or withdrawn.


EIS loss relief

Additionally, if you are self-employed and end up selling any EIS shares at a loss, you can set the loss against your income, minus any Income Tax relief that has already been given. 


Find out if venture capital could work for you

As a leading accountants in Walsall providing expert tax services with one of the most dedicated teams of Chartered Accountants in the Birmingham area, our goal is to help private investors pick the right investment opportunities for them. 

Venture capital is a high-risk method of investing, though the potential for high returns makes it worthwhile for many private, and even corporate, investors. Our in-depth knowledge of both private and corporate tax planning means that we are well positioned to provide you with tailored support and advice on your financial choices. 

Get in touch today to speak with our team and start working towards a better financial future!