Seed Enterprise Investment Scheme (SEIS) was introduced in 2012/13 to encourage investors to support start-up and early stage businesses, and there is still an opportunity to shelter full capital gains taxable in 2012/13. Gains up to £100,000 for the 2012/13 tax year can be sheltered by making SEIS investments before 5 April 2013. In addition a SEIS investment made in 2013/14 can be carried back and treated as a 2012/3 investment provided the maximum is not exceeded.

The 2013 Budget has also extended a limited capital gains tax relief to cover 2013/14 gains for SEIS investments made in 2013/14 or 2014/15; however this extended relief will be restricted to 50% of the qualifying re-invested amount.

"SEIS is a great way to nurture young businesses and encourage wider economic growth, and if you were thinking of realising your investment, now is the right time to do it. It's worth acting fast in order to get the 100% reinvestment relief against a chargeable gain which has crystallised in 2012/13," said Richard Mannion, national tax director at Smith & Williamson, the accountancy and investment management group.  

The maximum investment you can make is £100,000, and benefits to the client include:

  • Income tax credit at 50%
  • Capital gain sheltered
  • If the business fails, further income tax relief can be claimed

As an illustration of how the scheme works, assume Mr A has made a capital gain of £60,000 in 2012/13 and has cash of £50,000 which he is willing to invest in a start-up business qualifying for SEIS before 5 April 2013. The implications are as follows:

  • He will receive an income tax credit of £25,000 (£50,000 at 50%).
  • £50,000 of the £60,000 gain will be free of CGT, thereby saving £14,000 (£50,000 at 28%).
  • The net effective cost of the investment will then be £11,000.
  • If the business fails and Mr A loses his £50,000, he will be able to claim loss relief against his taxable income. Assuming he is taxable at a top rate of 45% in the year of loss he will be able to claim a tax refund of £11,250 (£50,000- £25,000 at 45%).
  • So even if Mr A loses the whole of his investment he will still be marginally in pocket.
  • Any capital gain made on the investment, without limit, will be tax free provided the investment has been held for at least three years.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.