What is SEIS (Seed Enterprise Investment Scheme)?
SEIS is a UK government scheme that offers investors 50% income tax relief, CGT exemption, and loss relief when they invest in qualifying early-stage companies. Companies can raise up to £250,000 under SEIS.
Current Rate (2025/26)
50% income tax relief for investors, £250,000 maximum raise per company, £200,000 maximum per investor per tax year
Example
An angel investor puts £100,000 into your SEIS-qualifying startup. They get £50,000 off their income tax bill (50% relief). If your company later fails, they can claim further loss relief. If it succeeds, any gain on the shares is CGT-free after 3 years.
Key Dates
Shares must be held for at least 3 years to retain all reliefs. SEIS1 compliance statement filed after share issue. Advance assurance typically takes 4-6 weeks.
How SEIS (Seed Enterprise Investment Scheme) Works in Practice
The Seed Enterprise Investment Scheme was introduced in 2012 to encourage investment into early-stage UK companies. It is specifically designed for very small, very new businesses that carry the highest investment risk. To compensate for this risk, SEIS offers the most generous tax reliefs of any UK investment scheme: 50% income tax relief (compared to 30% for EIS), complete CGT exemption on gains from SEIS shares after 3 years, and the ability to reinvest capital gains from other assets with 50% of the reinvested gain being exempt from CGT.
The scheme is tightly targeted. Only companies that are less than 2 years old (measured from first commercial sale), have fewer than 25 employees, have gross assets under £350,000, and carry on a qualifying trade can use SEIS. The company can raise a maximum of £250,000 in total under the scheme, which is a lifetime cap per company. Individual investors can invest up to £200,000 per tax year across all their SEIS investments and claim the 50% income tax relief against their income tax liability for that year, or carry it back to the previous tax year.
One of the most important practical features of SEIS is the loss relief available if the investment fails. If a SEIS company goes into liquidation, the investor can claim loss relief at their marginal income tax rate on the net cost of the investment (after deducting the income tax relief already received). This dramatically reduces the downside risk. For a higher-rate taxpayer who invested £100,000, received £50,000 in income tax relief, and then lost the remaining investment, the loss relief could be worth up to £22,500 (45% of the £50,000 net cost). The maximum total loss on a £100,000 investment for a higher-rate taxpayer can be as low as £13,500 after all reliefs are claimed.
SEIS differs from EIS in a crucial way for founder-directors: directors of SEIS companies can claim tax relief on their own investment, provided they hold no more than 30% of the company's shares. Under EIS, directors and employees are completely excluded from claiming relief. This makes SEIS particularly valuable for co-founding teams where each founder holds a minority stake.
Step by Step
The process begins with the company applying for advance assurance from HMRC, which confirms that the company should meet the SEIS conditions. While not legally required, almost all angel investors and networks insist on advance assurance before committing funds. The company submits details of its trade, financials, shareholders, and proposed share issue to HMRC's Small Company Enterprise Centre, which typically responds within 4-6 weeks.
Once advance assurance is received and the shares are issued to investors, the company files an SEIS1 compliance statement with HMRC. If HMRC is satisfied that all conditions are met, it issues SEIS3 compliance certificates to each investor. The investor then uses this certificate to claim the 50% income tax relief on their Self Assessment tax return. The relief can be claimed for the tax year in which the shares were issued, or carried back to the previous tax year. All conditions must be maintained for 3 years from the date the shares were issued. If the company ceases to qualify during this period, the tax relief is clawed back from the investors.
Practical Tips
- Apply for advance assurance as early as possible in your fundraising process, as the 4-6 week HMRC response time can delay your round significantly
- Structure your cap table so that founder-directors each hold 30% or less if they want to claim SEIS relief on their own investment
- Keep a detailed spreadsheet tracking how every pound of SEIS money is spent, categorised as qualifying or non-qualifying expenditure, ready for the 70% spend rule check
- Consider applying for combined SEIS and EIS advance assurance if you plan to raise EIS funding within 12 months of your SEIS round
- Set investor expectations about the SEIS3 certificate timeline - it typically takes 6-10 weeks after share issue to receive certificates from HMRC
Common Mistakes to Avoid
- Not applying for advance assurance before approaching investors, which most angel networks require before they will consider investing
- Exceeding the £350,000 gross assets threshold by failing to account for all assets including cash in bank, equipment, and debtors before the share issue
- Issuing shares with preferential rights (such as preferential dividends or liquidation preferences) which disqualifies them from SEIS relief
- Failing to meet the 70% spend rule before raising EIS money, which prevents the subsequent EIS round from qualifying
- Not keeping adequate records of how SEIS funds were spent, which can lead to problems at the compliance statement stage
Frequently Asked Questions
Can I use SEIS for my own investment in my company?
Yes, provided you are a director (not just an employee) and you hold no more than 30% of the company's shares, voting rights, or rights to assets. This is a key advantage of SEIS over EIS, where directors cannot claim relief at all. Your spouse's or civil partner's shareholding counts towards your 30% limit.
What is the maximum amount my company can raise under SEIS?
£250,000 in total. This is a lifetime cap per company, not an annual limit. Once your company has raised £250,000 under SEIS, it cannot raise any more through the scheme, even if the first investments were made in a previous tax year.
How does the SEIS CGT reinvestment relief work?
If an investor has a capital gain from selling another asset and reinvests that gain into SEIS shares, 50% of the reinvested gain is permanently exempt from CGT. The remaining 50% is deferred until the SEIS shares are disposed of. This is different from EIS, where the full gain is deferred but none is permanently exempt.
What happens if my SEIS company fails?
The investor can claim loss relief at their marginal income tax rate on the net cost of the investment (original investment minus the income tax relief received). For a higher-rate taxpayer who invested £50,000 and received £25,000 income tax relief, the loss relief on the remaining £25,000 could be up to £11,250, making the total cost of the failed investment just £13,750.
Can my company raise SEIS and EIS at the same time?
Not simultaneously. You must raise SEIS first and spend at least 70% of the SEIS funds on qualifying business activity before your company can raise EIS investment. The typical path is SEIS for the initial seed round, then EIS for subsequent larger rounds.
Source: HMRC VCM30000 - SEIS Manual
Related Terms
EIS is a UK government scheme that offers investors 30% income tax relief, CGT deferral, CGT exemption after 3 years, and loss relief when they invest in qualifying companies. Companies can raise up to £5 million per year under EIS.
Advance assurance is a confirmation from HMRC that a company should meet the conditions for SEIS or EIS, based on the information provided. It gives investors confidence that their investment will qualify for tax relief before they commit their money.
A qualifying trade is a trade that is eligible for SEIS and EIS tax relief. The legislation works on an exclusion basis: most trades qualify unless they are on the list of specifically excluded activities such as property development, financial services, and legal or accountancy services.
An angel investor is a high-net-worth individual who invests their own money into early-stage companies, typically in exchange for equity. UK angel investors frequently invest through SEIS and EIS to benefit from significant income tax relief, CGT exemption, and loss relief.
Share premium is the amount paid by investors for shares above their nominal (par) value. It is recorded in a separate share premium account on the balance sheet and has legal restrictions on how it can be used.
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