Understanding the SEIS Changes for the 2023/24 Tax Year
On April 6th, 2023, several changes to the Seed Enterprise Investment Scheme (SEIS) were introduced, significantly impacting both investors and startups in the UK. These adjustments make it easier for companies to raise capital while offering investors more opportunities to invest. Here’s what you need to know about the latest updates to the SEIS and how they could affect your investment strategies.
Key Changes to the SEIS in 2023/24
The new SEIS changes mark an important step in supporting the growth of startups, especially in the face of challenging economic conditions. These adjustments make the scheme more attractive for both investors and companies seeking funding. The main changes that took effect in the 2023/24 tax year are:
- Higher Investment Limits for Companies
The amount a company can raise under the SEIS has increased from £150,000 to £250,000. This boost in funding potential gives startups greater access to capital to fuel their early-stage growth. - More Inclusive Eligibility Criteria for Companies
Companies can now qualify for the SEIS with assets up to £350,000, up from the previous limit of £200,000. This change allows more businesses to tap into the scheme. - Longer Trading Period for Eligibility
The eligibility period for trading companies has been extended. Startups can now qualify for SEIS funding if they have been trading for up to three years, a step up from the two-year limit previously in place. - Increased Investment Cap for Individuals
Individual investors can now invest up to £200,000 per year in SEIS shares, doubling the previous limit of £100,000. This provides more opportunities for investors to take advantage of the scheme’s tax benefits.
These changes have been generally welcomed by startups and investors, providing a much-needed boost in a time of economic uncertainty. The government anticipates that these adjustments will encourage around 2,000 businesses to use the SEIS annually, with approximately 9,000 investors benefiting from the scheme.
SEIS Updates: Important Considerations for Startups and Investors
While the changes to the SEIS were announced in April 2023, they are part of the Finance (No. 2) Bill, which is still going through Parliament and is expected to receive Royal Assent by July 2023. While the SEIS changes are likely to be approved, they aren’t legally binding until the bill passes. That said, businesses that qualify under the new rules may begin raising up to £250,000, and investors can make larger investments, even before the official confirmation.
It’s important for both startups and investors to stay informed about these potential changes and continue to monitor the progress of the Finance Bill.
SEIS Tax Reliefs Available for Investors
For investors, the tax advantages of the SEIS remain intact. The scheme offers several key benefits that can significantly reduce the amount of tax you pay on your investments:
- 50% Income Tax Relief: Investors can claim a 50% income tax relief on the amount invested, making the effective cost of each pound invested just 50p.
- Capital Gains Tax (CGT) Relief: Gains earned through SEIS investments are exempt from capital gains tax.
- CGT Deferral Relief: If you reinvest gains from the sale of another asset into SEIS shares, you may be able to defer your capital gains tax liability for up to three years.
- Loss Relief: If the investment does not perform well, you can offset the loss against your income tax or capital gains tax.
- Inheritance Tax (IHT) Exemption: If you hold your SEIS shares for at least two years, they are exempt from inheritance tax.
These reliefs make the SEIS a powerful tool for investors looking to reduce their overall tax burden while supporting early-stage businesses.
How Do These Changes Affect Investors and Startups?
The adjustments to the SEIS provide several advantages to both startups and investors:
- For Startups: The increased funding limits and broader eligibility criteria make it easier for a larger number of startups to raise capital. This change should help these businesses access the funding they need to scale and grow in the early stages, contributing to their long-term success.
- For Investors: The higher investment cap of £200,000 allows investors to make more substantial investments into qualifying businesses each year, increasing their potential returns. Additionally, the extension of eligibility to companies with a longer trading history offers investors more options, potentially lowering the level of risk involved in investing in early-stage startups.
The government’s goal with these changes is to stimulate investment in the SME sector and support business growth in a challenging economic environment. The adjustments make SEIS investments more attractive to investors by allowing them to invest more and enjoy the generous tax incentives, while also benefiting startups that now have access to greater funding.
Final Thoughts
The changes to the SEIS in the 2023/24 tax year are a positive development for both investors and startups in the UK. By increasing investment limits, expanding eligibility, and offering significant tax reliefs, the scheme provides more opportunities for businesses to grow and for investors to achieve strong returns.
Startups will benefit from easier access to funding, and investors can take advantage of the enhanced tax reliefs and potentially lower-risk opportunities in more established businesses. For those considering the SEIS, it’s crucial to stay informed about the legislative process and consult with financial advisers to fully understand how these changes can work to your advantage.
