SEIS funds are quickly becoming one of the most attractive investment options for investors. The Seed Enterprise Investment Scheme (SEIS) offers a range of benefits that are unmatched by other investment vehicles or tax planning tools. These benefits include 50% income tax relief, capital gains reinvestment relief, 0% inheritance tax liability, and even loss relief protection at your marginal tax rate. Additionally, returns on SEIS investments are 0% capital gains.
SEIS has played a crucial role in the success of Britain's startup ecosystem over the past decade by providing early-stage funding to innovation-led businesses. This has helped to establish Britain as a leader in key future sectors such as disruptive technology and life sciences.
However, in recent years, the early-stage funding market in the UK has begun to plateau. This is partly due to economic factors, but also because SEIS had become outdated and needed updating to stay relevant for the seed funding market. Changes to the scheme from April 2023 have addressed these issues and have significantly changed the landscape of SEIS for investors.
These changes include:
- Investors will be able to invest a maximum of £200,000 per year in SEIS (previously £100,000).
- Companies will be able to raise SEIS within three years of trading (previously two years).
- Companies will be able to raise £250,000 in SEIS (previously £150,000).
- Companies must have less than £350,000 in gross assets (previously £200,000).
As a result of these changes, businesses will be more mature, and so will investors. While there may be fewer small SEIS investors in the coming year due to environmental factors, the changes have already led to a new generation of larger investors being advised on SEIS Funds for the first time.
The increased influence of SEIS funds means that portfolio building is becoming increasingly important. With short-term headwinds impacting most markets, a portfolio of companies across a broad range of sectors helps to build resilience, spread risk, and give investors the best chance of delivering outsized returns.
In seed investing, there will inevitably be failures along the way, but it's not the failures by which you judge a portfolio. It's the strength of returns from those that succeed that matter most. Building large portfolios is the best way to deliver success from your investment. A recent example from SFC Capital, an SEIS fund, is their exit from an investment in a software company called Cognism with a 45x return. Accounting for the tax relief benefits, the return on investment was actually closer to 100x.
In addition to building large portfolios, diversification is also important. Investing in a variety of sectors and businesses helps to spread risk and increase the likelihood of success.
SEIS funds are an attractive option for investors due to their generous benefits and efficient program. The recent changes to the scheme have made it even more appealing, and it is likely that we will see more and more investors turning to SEIS funds in the coming years.
Capital at risk. For professional investors only.
Tax benefits are subject to individual circumstances. Subject to changes.
Past performance is not indicative of future performance.
For more information on SEIS and EIS, please read SFC Capital’s article All you need to know about SEIS and EIS.
Further information:
Tax relief for investors using venture capital schemes - GOV.UK (www.gov.uk)
