Investing in startups can be rewarding but is also very risky. Some of these companies might do very well, but inevitably others will struggle and some will fail.
The tax incentives the government offers through the Seed Enterprise Investment Scheme (SEIS) provide a valuable buffer against this risk. They mitigate the impact of investments that don’t work out, and amplify the impact of investments that do well.
SEIS tax relief at a glance
- Up to 50% income tax relief – up to £5,000 saving on a £10,000 investment
- Generous allowance – £200,000 per tax year
- Tax-free growth
- Up to 50% capital gains reinvestment relief – halve the CGT due on gains from elsewhere
- Loss relief – offset any future losses against your income
- Inheritance tax relief – potentially pass on your investment free from IHT
Tax rules can change and benefits depend on circumstances. This is a brief outline based on current rules: there are detailed conditions and rules you should consider carefully before investing. If unsure, seek advice. These are high-risk investments and you should invest on the merits of the investment, not for the tax advantages alone.
Up to 50% income tax relief
A £100,000 investment could provide a £50,000 saving on that year’s income tax bill. To claim this, you must have sufficient income tax liability and hold the shares for at least three years.
You can invest up to £200,000 per tax year.
Carry back
Assuming you have the allowance, you could ‘carry back’: offset the tax relief against the previous year’s tax bill and potentially get back tax you’ve already paid. So if you use both years’ allowances you could potentially invest up to £400,000 in one go.
Tax-free growth
You normally pay no capital gains tax (CGT) when realising SEIS shares, provided you have claimed income tax relief on them and the companies still qualify. This is known as ‘SEIS disposal relief’.
Up to 50% capital gains reinvestment relief
You could reduce the CGT on gains made elsewhere by up to 50%. You could do this on all or part of the gain. To benefit, you must have had the income tax relief in the same year.
Inheritance tax relief
Under current rules, an investment in an SEIS-qualifying company should benefit from 100% relief from inheritance tax, provided the investment is held for two years and at the time of death.
From 6 April 2026 100% IHT relief on SEIS private companies will be limited to the first £1 million of qualifying assets (including private companies and agricultural property), with the remainder eligible for 50% IHT relief (an effective IHT rate of 20%). Any qualifying SEIS companies quoted on AIM will be eligible for 50% IHT relief (an effective IHT rate of 20%).
Loss relief
If things don’t go to plan, you can choose to offset any loss, less the income tax relief received, against your income tax bill.
So, an additional-rate taxpayer could effectively reduce a total loss of £1 to 15.5p once all the tax reliefs available have been taken into account. Read more on how SEIS loss relief works.
How SEIS tax relief helps reduce any losses and magnify any gains
If you invest £100,000 under SEIS, because of the income tax relief of up to 50%, the effective net cost could be as little as £50,000. 50% CGT reinvestment relief could provide an additional boost. The table below gives examples of how that – and loss relief – might affect your returns whether your investment does well or badly.
Loss relief allows you to write off any losses against income tax. So, if your investment falls to zero, you could in effect deduct the £50,000 loss from your taxable income. This gives a potential tax saving of £22,500 for a top-rate taxpayer. Add to that up to £12,000 capital gains reinvestment relief (available on gains made from 30 October 2024) and the maximum effective loss could be as little as £15,500. Meanwhile, if your investment grew by 50%, thanks to the tax relief, you could be looking at an effective gain of 112%.
| Investment falls to zero | Investment falls by 50% | Investment has no growth | Investment grows by 50% | |
|---|---|---|---|---|
| Initial investment | £100,000 | £100,000 | £100,000 | £100,000 |
| Net cost of investment | £50,000 | £50,000 | £50,000 | £50,000 |
| Investment value on realisation | £0 | £50,000 | £100,000 | £150,000 |
| Loss relief (45% of at risk capital) | £22,500 | £0 | £0 | £0 |
| Effective gain/loss after tax reliefs | (£27,500) | £0 | £50,000 | £100,000 |
| Capital gains reinvestment relief | £12,000 | £12,000 | £12,000 | £12,000 |
| Effective gain/loss after all tax reliefs | (£15,500) | £12,000 | £62,000 | £112,000 |
| Effective gain/loss after all tax reliefs | (15.5%) | 12% | 62% | 112% |
For illustrative purposes only. The table assumes a CGT rate of 24%, as applicable to gains made from 30 October 2024. Tax rules can change and benefits depend on circumstances. These figures assume an additional-rate taxpayer.