EIS and SEIS investments: when could I get tax relief?
When you invest in EIS or SEIS, you are providing capital to young, smaller businesses to help them grow. Some may do well or even very well, a number will fail – and the rest might do anything in between. To help compensate for some of this risk, there are generous tax benefits associated with EIS and SEIS investments.
To fully use these tax benefits, experienced investors may want to consider the timing of their investment.
Please note: timings are not guaranteed and are at the discretion of the managers. Wealth Club cannot guarantee timings of any offer.
What are the tax benefits?
As a reminder, the tax benefits associated with EIS and SEIS investments are:
- Up to 50% (SEIS) or 30% (EIS) income tax relief
- Up to 50% capital gains tax reinvestment relief (SEIS)
- Capital gains deferral relief (EIS)
- Tax-free growth
- Loss relief – offset losses against income or capital gains tax
- Inheritance tax relief after two years
You can invest up to £100,000 per tax year in SEIS and up to £1 million (potentially £2 million) in EIS. To retain eligibility for the tax reliefs, EIS and SEIS investments must be held for a minimum of three years, however, you should expect to hold the investment considerably longer. Note: tax rules can change and benefits depend on circumstances.
Timing of your investment
EIS and SEIS income tax relief
For both EIS and SEIS investments, you can claim tax relief in the same tax year you are invested or in the previous tax year (through something called ‘carry back’). Importantly, this is not normally the date you apply to invest or make payment. It is when your capital is deployed and your shares ‘allotted’. Note: different rules apply to knowledge intensive funds.
If you choose to invest directly in an EIS or SEIS-qualifying single company, your shares should typically be allotted relatively quickly – in as little as a few weeks in some cases.
For conventional SEIS and EIS funds, deployment timeframes vary from a few weeks to up to 18 months. So, your investment may be made across more than one tax year. Typically, funds will indicate how long they expect deployment to take, although this is not guaranteed.
After your shares have been allotted and you have received the relevant EIS certificates, you can claim income tax relief against your income tax bill in the same tax year you were allotted or ‘carry back’ to the previous tax year. For example, if your investment is allotted the 2022/23 tax year you can claim income tax relief in 2022/23 or 2021/22.
Complete the online application and make payment.
Your capital is deployed and your shares are allotted - this can typically take around 6-18 months.
3. Tax relief
Claim tax relief after receiving EIS3 or SEIS3 certificates (typically 3-6 months from deployment).
Capital gains tax reliefs
For EIS investments, you can defer a taxable gain of any size, made up to three years before and one year after the date your EIS shares are allotted – you can defer a gain even if you have already paid the tax.
SEIS investments offer up to 50% capital gains tax reinvestment relief, so you can halve a capital gains liability on another investment. You must claim capital gains reinvestment relief in the same year as your income tax relief. For example, if your SEIS shares are allotted in 2022/23 and you choose to ‘carry back’ and claim income tax relief in 2021/22, you must also claim reinvestment relief in that year.
Three ways to access EIS and SEIS tax reliefs
1. EIS single company private offers
Investing in a single-EIS qualifying company gives you an opportunity to invest directly in a particular company you consider commercially compelling and able to deliver attractive returns, with the benefit of EIS tax relief. Please note, these are investments in a single company with no diversification so are high risk.
2. EIS funds
You could also invest in a professionally managed portfolio of EIS qualifying investments, where an expert makes the investment decisions for you based on their research and experience. Funds can also offer some diversification, however some or all of the portfolio companies could fail.
3. SEIS funds
As with EIS funds, investing in a SEIS fund means your investment is professionally managed and offers some diversification. The tax benefits associated with SEIS investments are greater, but as they invest in smaller companies they are also higher risk – you could lose all the money you invest.
Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.