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Investor Post-Investment Guide: SEIS Tax Relief

Niklas Föltz, Marketing & Communications Manager Joining in 2022, Niklas brings international marketing experience to SFC Capital, focusing on marketing strategy, content, PR, and events.
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Navigating Post-Investment: Strategies, Tax Benefits, and Monitoring Performance

Investing in early-stage startups can be rewarding when investing through the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS). However, there are some housekeeping rules for after you invest to ensure long-term success and maximize the tax benefits of the SEIS Tax Relief and EIS Tax Relief.

What is Your Role?

There are different paths through which you can invest into early-stage startups

  1. Direct Investment: Also known as angel investing, this is when you invest your money directly into the startup. In this approach, your name may appear on the company's list of shareholders, and you might play roles such as board member or mentor.
  2. Fund Investment: Here, you invest in a portfolio consisting of multiple early-stage companies. The primary advantages include diversification across various industries and having a professional fund manager handle due diligence, board responsibilities, monitoring the company's financial health, and developing an exit strategy.

For this guide, we will assume the latter, so a portfolio approach to investing.

Portfolio Approach

Claiming SEIS Tax Relief

Once you have made your investment into the fund, and the fund has been deployed, you can now claim your SEIS tax relief.

If you invest through a fund, the fund manager will take on most of the tasks. For instance, all companies will be pre-vetted against their SEIS eligibility. Also, after an investment has been made and approved by HMRC, the fund manager will provide the SEIS3 form, which should then be stored away safely. 

Steps to claim SEIS tax relief:

  1. Safely store the SEIS3 certificates
  2. Complete the self-assessment tax return
  3. Provide evidence of the investment
  4. Submit your tax return on time

To claim the tax reliefs, you will need to complete the self-assessment tax return. Usually, this can be found under 'Other tax reliefs' on page Ai 2. Then, enter the specific investment details under 'Any other information' in box 19, page TR 7. The details include the following:

  • Unique Investment Reference (UIR)
  • Investee company name
  • Investment amount
  • Date of issue of the shares
  • HMRC may ask for the SEIS3 forms

Additional tips:

  • Carry back option: If you've missed out in the previous year, you can backdate some or all of your SEIS investment to the preceding tax year.
  • For any questions, you can get in touch with HM Revenue & Customs
Staying up to date with performance

It's crucial to set up a system to track the performance of your investments. Some funds offer portals with an easy overview of your investments, insights into valuations and recent company reports.

However, it's essential to remember that early-stage startups might take time before showing significant returns, as startups oftentimes follow the 'hockey stick' curve of growth. With low revenues at the beginning, startups invest heavily into product development and set themselves up commercially before seeing returns further down the line. Hence, patience is key.

Hockey Stick Curve

Conclusion

When you're investing into a portfolio, usually the fund will take over many of the obligations startup investors would usually have. Still, it is important to follow some simple housekeeping rules to be able to realise the attractive tax benefits that await you when investing through SEIS and EIS.

It's important to manage expectations because early-stage startups might only realise returns some years into the future. However, you need to set yourself up to be able to track the companies' performance if not provided by your fund manager.

To claim your SEIS tax relief, you need to organise your documents, and keep track of your investments. You can claim the relief through the self-assessment tax return and can also claim backwards.

We at SFC Capital have developed our own portfolio management software which gives investors full control over their investments and documents. If you are interested in investing through SEIS, register here as an investor.

Capital at risk. For professional investors only.


FAQ

How frequently should I monitor the performance of my investments?

It's advisable to monitor your investments regularly, but the exact frequency depends on your personal preference and the nature of the investment. For early-stage startups, quarterly reviews can provide a good balance between staying informed and not reacting hastily to short-term market fluctuations. However, if the fund or startup provides monthly updates, you might consider a monthly review.

What are the SEIS limits for HMRC?

Under the SEIS, individual investors can invest up to £200,000 in a single tax year, which can be spread over a number of companies. On this investment, they can receive up to 50% tax relief. Additionally, there are restrictions on the company's side as well. A company can raise a maximum of £250,000 under the SEIS scheme throughout its lifetime.

What happens if I don't receive an SEIS3 certificate after my investment?

The SEIS3 certificate is essential for claiming tax reliefs. If you haven't received it, contact the company you've invested in or the fund manager overseeing the investment. They are responsible for obtaining the SEIS3 form from HMRC and providing it to investors. There could be delays, but it's important to ensure it hasn't been overlooked.

What happens if an SEIS company goes bust?

If an SEIS company goes bust, the investor will likely lose their investment. However, they may be able to claim loss relief against their income tax or capital gains tax liability. They can also carry back losses to previous tax years and reinvest in another SEIS company.

How do fund managers select startups for their portfolios?

Fund managers use a combination of methods to select startups. This includes market research, due diligence on business models and financial health, evaluations of the founding team, and assessments of the product or service's potential. They also consider the startup's fit within the broader portfolio, ensuring diversification to mitigate risk.

Sources

HM Revenue & Customs (2023). HS393 Seed Enterprise Investment Scheme — Income Tax and Capital Gains Tax reliefs (2022).

HM Revenue & Customs (2023). Tax relief for investors using venture capital schemes.

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DISCLAIMER:
SFC Capital Ltd (SFC) is an appointed representative of SFC Capital Partners Ltd which is authorised and regulated by the Financial Conduct Authority (‘FCA’) in the United Kingdom (FRN 736284). This website is intended for professional investors only; any reproduction of this information, in whole, or part, is prohibited. The content is for information purposes only and should not be used or considered as an offer or solicitation to purchase or sell any securities.

Investment in early-stage companies involves risks such as illiquidity, lack of dividends, loss of investment and dilution. Investment in SEIS/EIS eligible companies should be considered as part of a diversified portfolio. The availability of tax relief depends on individual circumstances and may change in the future. The availability of tax relief depends on the company invested in maintaining its SEIS/EIS qualifying status. There is no assurance that the investment objectives of any investment opportunity will be achieved or that the strategies and methods described herein will be successful. The investment products cited herein may place capital at risk and therefore investors may not get back the full amount invested. Past performance is not necessarily a guide to future performance and the value of an investment may go down as well as up. Investors may not get back the full amount invested. Companies’ pitches for investment are not offers to the public and investments can only be made by members of SFC Capital. SFC Capital takes no responsibility for this information or for any recommendations or opinions made by the companies. Neither SFC Capital nor any of its employees provide any financial or tax advice in relation to the investments and investors are recommended to seek independent financial and tax advice before committing. This website is not directed at or intended for publication or distribution to any person (natural or legal) in any jurisdiction where doing so would result in contravention of any applicable laws or regulations. No warranties or representations of any kind are expressed or implied herein. This material is confidential and is the property of SFC Capital.

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