Holding Shares
The investor must have held their shares for at least three years in an SEIS or EIS company to gain Capital Gains Tax exemption.
Issuing the SEIS and EIS shares on the same day
There are a few practical points to make about this which are often overlooked:
- You must not issue EIS shares on the same day as SEIS. If this occurs, the tax authorities will request that you withdraw from one scheme
- You must make sure you issue the shares once the investment has been received and not before. If you issue shares before the cash in is the company bank account then it is a disqualifying investment
- If your start-up is raising under both SEIS and EIS, i.e. above £150,000, then it is at your discretion which investors receive SEIS
If an investor who pays UK tax, receives more than 30% in ordinary share capital, issued capital or voting power in exchange for their investment then they would not qualify. There is also an "associates" rule where the 30% takes into account the shareholding of business partners and relatives. However, siblings would be excluded.
Founders cannot qualify for SEIS relief
A founder can qualify for SEIS. The investor must not be an employee of the issuing company, at any time during the period from the date the shares are issued to the third anniversary of issue.
The investor may however be a director (paid or unpaid) as they are not considered as an employee for SEIS purposes.
Overseas parent creating a UK subsidiary
A subsidiary of the overseas parent wouldn’t qualify because a company cannot be controlled under the SEIS and EIS rules. This also applies to a UK group structure.
De-risking the investment
Investors must invest for cash, in ordinary full risk shares, and any attempt to de-risk the investment would disqualify the investor. This means no liquidation preference and no preferential treatment over dividends.
Article by
Roy Butcher
Partner and SME expert.
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