The confirmation that SEIS – Seed Enterprise Investment Scheme – relief is to be made permanent was one of the most important changes in the Budget, particularly for the media:tech sector.
What’s it for?
SEIS is designed to help small, early-stage companies to raise equity finance by offering tax relief. This aims to encourage investment in earlier-stage (and by extension, higher-risk) companies than the EIS covers.
This is clearly particularly relevant in the media:tech sector, where startups emerge quickly, raise relatively modest levels of capital from angels, and can scale very, very rapidly.
SEIS was originally introduced as a temporary relief, applicable only until 2017, but has been very popular and successful – government statistics suggest that it has already raised £82 million for some 1,100 companies.
It has now been made into a permanent relief.
How does it work?
SEIS offers 50% income tax relief tax relief on investment in qualifying shares, up to a maximum investment of £100,000 p.a. When these shares are sold, no capital gains tax applies if they have been held for three years or more.
Entrepreneurs can also roll capital gains into SEIS qualifying investments, benefiting from 50% Capital Gains Tax relief – meaning those who re-invest a capital gain into an SEIS pay a net cost of only 36% of the value of their investment.
Why does it matter?
SEIS, and EIS covering larger companies, offers highly attractive benefits for entrepreneurs re-investing their gains in fast-growing and exciting new businesses.
As the IPO markets open and transaction volumes increase, we should see entrepreneurs making big gains. SEIS should encourage them to re-invest these gains across the media:tech landscape. In this way, their success fuels further success in a virtuous circle, and the UK’s startup scene should become more of a self-sustaining ecosystem – following the pattern seen most strikingly in Silicon Valley.