Seed Enterprise Investment Scheme (SEIS)

The Seed Enterprise Investment Scheme (SEIS) offers the most generous tax reliefs to investors in the UK - 50% income tax relief plus CGT exemptions. It's designed specifically for very early-stage companies seeking seed capital to prove their business concept.

Who can use SEIS

Your company can use SEIS if:

• it is less than 3 years since its first commercial sale (up from 2 years in April 2023)
• it has gross assets of £350,000 or less when the shares are issued (up from £200,000 in April 2023)
• it has fewer than 25 full-time equivalent employees
• it has a permanent establishment in the UK
• it has not been controlled by another company since it was incorporated

You can raise up to £250,000 in total through SEIS over the company's lifetime (up from £150,000 in April 2023).

Qualifying trade requirement

Your company must conduct a qualifying trade on a commercial basis with a view to profit. Excluded activities (which cannot be more than 20% of your trade) include:

• Coal or steel production
• Farming or market gardening
• Leasing activities
• Legal or financial services
• Property development
• Running hotels, nursing homes, or care homes
• Generation of electricity, heat, gas, or fuel
• Banking, insurance, money-lending

Connected party restrictions

• Investors cannot be employees of the company (unless also a director)
• You cannot use SEIS if you've already received EIS or VCT investment - SEIS must come first
• No reciprocal investment arrangements (subscribing to each other's share issues)

Tax reliefs for investors

SEIS offers investors the highest tax reliefs of any UK venture capital scheme:

Income tax relief

Investors get 50% income tax relief on qualifying subscriptions, compared with 30% for EIS. They can invest up to £200,000 a tax year, so the most relief they can get is £100,000. For example, a £50,000 investment gives the investor £25,000 of income tax relief.

Capital gains tax exemption

• If held for at least 3 years, gains on SEIS shares are completely free from CGT
• Investor must have received full income tax relief with none subsequently withdrawn
• Exception: sales to spouse or civil partner within 3 years do not trigger CGT

CGT reinvestment relief

• 50% of gains are exempt from CGT when reinvested in SEIS shares
• Annual limit: £100,000 (£50,000 worth of gains)
• Must dispose of an asset and reinvest the gain in SEIS shares in the same tax year

Loss relief

• Can offset losses against chargeable gains
• Reduce cost of shares by income tax relief given when calculating loss

The application process

Apply for advance assurance (recommended)

Submit an application to HMRC via their online form before issuing shares. While not mandatory, advance assurance gives investors confidence. Include:

• Proposed fundraising amount
• Business plan and financial forecasts
• Latest accounts
• Memorandum and articles of association
• Register of members
• Investor pitch materials

HMRC approved 85% of advance assurance applications in 2024-25.

Issue shares to investors

Once you have advance assurance (or choose to proceed without), issue shares. Notify HMRC of any changes since your application.

Submit SEIS1 compliance statement

This statutory declaration confirms your company meets all qualifying conditions and will continue to do so for 3 years. Required before investors can claim relief.

Issue SEIS3 certificates

After HMRC approves your SEIS1, issue SEIS3 certificates to each investor. They cannot claim tax relief without this certificate.

It typically takes 3 to 4 months from advance assurance to investors claiming relief.

Compliance requirements

Your company must maintain qualifying conditions for at least 3 years after investment.

You must notify HMRC within 60 days if:

• Investor ceases to be a qualifying investor
• Raised money will not be employed as required (must be spent within 3 years)
• Company ceases to be a qualifying company
• Company or connected person provides value to investor
• Any breach of scheme conditions

Clawback triggers

Investors can lose their income tax relief, in whole or in part, if:

• they sell their shares within 3 years, unless they sell to a spouse or civil partner
• your company stops qualifying, for example by going over the employee cap or losing its qualifying trade
• the money is not spent on qualifying business activities within 3 years
• an investor becomes an employee without being a director

Penalties

• £100+ penalties for failing to notify HMRC within 60 days
• Additional penalties for fraudulent or negligent false information

SEIS before EIS: the graduation strategy

Many UK startups use SEIS as a stepping stone to EIS as they scale:

1. At seed stage (0 to 3 years), raise up to £250,000 through SEIS, with 50% tax relief for angel investors.
2. At growth stage (3 to 7 years), move to EIS, which lets most companies raise up to £10 million a year, with 30% tax relief for investors.
3. At scale stage (7 years and over), look at non-equity funding or further EIS rounds.

You cannot raise SEIS and EIS on the same day. Raise EIS at least one day after SEIS.

Research shows that companies approaching the £250,000 SEIS cap are the strongest predictors of graduating to EIS. SEIS helps you acquire startup capital, prove product viability, and attract further investment.

Why SEIS is attractive

The 50% relief, against 30% for EIS, makes investing more compelling for angels. The £250,000 limit suits a very early stage, when a larger raise is not feasible. Smaller companies mean simpler due diligence and faster decisions, and a SEIS round shows traction before a larger EIS raise.