Following our recent post on the UK tax benefits of investing in film, The Seed Enterprise Investment Scheme (SEIS) complements the existing Enterprise Investment Scheme (EIS), offering a range of tax reliefs to individual investors who purchase shares in small, early stage companies which are not listed on the stock exchange, such as a film investment.
SEIS is intended to recognise the particular difficulties which very early stage companies face in attracting investment, by offering tax relief at a higher rate than that offered by the existing EIS.
As with the EIS Investors can reclaim a percentage (50% for SEIS) of the cost of their investments against their income tax liability for the tax year in which the investments were made.
However, as with everything there are always restrictions, the maximum you can invest through SEIS in any tax year is £100,000.
Who can participate in SEIS?
Unconnected shareholders should be entitled to all of the reliefs above. For connected shareholders income tax relief and the CGT exemption are not normally available.Connection may be by financial interest or by employment with the company. Financial interest occurs where the subscriber and their associates (such are parents, children and business partners) control more than 30% of the company.
Employment includes directorships and also precludes the employment of associates (as defined above). However there is an exemption for business angels who become Directors.
Examples of the EIS, SEIS tax benefits and the investment opportunities we offer in this area can be found on
What are the benefits?
As with EIS there is no Capital gains Tax, Inheritance tax or loss relief tax to be paid on an SEIS investment opportunity.
Income Tax relief is available to individuals who subscribe for qualifying shares in a company such as a film investment opportunity which meets the SEIS requirements, and who have UK tax liability against which to set the relief.
The shares for the film investment must be held for a period of 3 years from date of issue for relief to be retained. If they are disposed of within that 3 year period, or if any of the qualifying conditions cease to be met during that period, relief will be withdrawn or reduced.
Relief is available at 50% of the cost of the shares, on a maximum annual investment of £100,000. The relief is given by way of a reduction of tax liability, providing there is sufficient tax liability against which to set it. A claim to relief can be made up to 5 years after the 31 January following the tax year in which the investment was made.
Here is an example of how it all works:
Say you invest £25,000 in an SEIS film investment in the Tax year 2013/14, and your income tax liability for the year is £35,000:
You also expect to release a capital gain of £25,000 on the disposal of some shares in companies listed on the stock exchange.
By claiming SEIS Relief and SEIS Reinvestment Relief you reduce your income tax liability by £12,500 to £22,500, and save on capital gains tax of £3,500. In total you save £16,000 in tax by investing £25,000 under the SEIS, making the net cost of your £25,000 investment just £9,000.
The shares are sold after 3 years for £50,000. Under SEIS, you do not have to pay capital gains tax on the gain of £25,000 saving yourself a further £7,000. Your post-tax return on a £25,000 investment under the SEIS which cost £9,000 after the initial income tax and CGT reliefs, is £50,000 – or more than 5 times the net cost.
For more information about EIS or SEIS investment, visit the HMRC. If you would like more information about EIS/SEIS film investment opportunities then feel free to contact us.