The investor's guide to claiming EIS and SEIS tax relief

Are you an investor looking to support early-stage companies but the risk is weighing on your mind?

The Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) are your ticket, offering generous tax reliefs to reduce the risk of getting involved.

But how exactly do you go about claiming the tax benefits themselves? Actually, it’s not as tricky as many assume – but as ever, there are a fair few hoops to jump through.

Let’s walk through the process step by step so you don't miss out on any of the reliefs you're entitled to.

How does EIS/SEIS work for investors?

Before we dive into the claiming process, let's recap the main tax benefits available under SEIS and EIS for investors:

Income tax relief

The headline relief for both schemes is income tax reduction.

Under SEIS, you can claim 50% of your investment back against your income tax bill, up to a maximum annual investment of £200,000 (which increased from £100,000 in April 2023).

So, if you invest £50,000 into an SEIS-eligible company, you can reduce your income tax liability by £25,000.

For EIS, income tax relief is set at 30%, with a higher annual investment limit of £1 million. This rises to £2 million if at least £1 million is invested in knowledge-intensive companies (KICs).

Knowledge-intensive companies, or KICs, are a special category of companies that can qualify for enhanced relief under EIS. To be classified as a KIC, a company must meet certain criteria related to innovation and intellectual property, on top of the EIS criteria.

Capital Gains Tax (CGT) relief

Any gains you make on SEIS or EIS shares are exempt from CGT, provided you've held the shares for at least three years.

In addition, the SEIS offers a unique benefit: 50% relief on CGT for gains reinvested into SEIS-eligible companies. This is subject to a cap of £100,000 per year.

So, if you sold a non-SEIS/EIS investment and made a £100,000 gain, you would normally pay 20% (£20,000) in CGT. But if you reinvest that £100,000 into SEIS shares, you would only pay half that amount (£10,000).

For EIS investments, you can defer the CGT payment on any gain made until you dispose of the EIS shares. You can reinvest the gain into another qualifying scheme, indefinitely deferring the CGT.

Loss relief

Another attractive feature of the SEIS and EIS is the loss relief. If the company you've invested in fails, you can claim loss relief at your marginal income tax rate.

Here's an example for an SEIS investment: Let's say you invest £100,000 and claim the 50% income tax relief (£50,000).

This means only £50,000 of your investment is at risk. If the company then goes into liquidation, assuming you pay income tax at 40%, your loss relief would be worth 40% of £50,000 (£20,000).

The same principle applies for EIS investments but with the 30% income tax relief.

How to claim SEIS and EIS tax relief

Now that we've covered the available reliefs, let's look at how you actually go about claiming them.

Step one: Get the forms

To claim your tax relief, you'll need to obtain two key forms from the company you've invested in:

1. The SEIS3 or EIS3 form
2. Unique Investment Reference

S/EIS3 is your compliance certificate, and it's your proof that the company and the shares you've acquired meet the schemes' requirements.

The company will send you this form once they've received confirmation from HMRC that they've met the scheme conditions.

If you invested through an approved EIS knowledge-intensive fund, you'll receive an EIS5 form from the fund manager instead.

The SEIS3, EIS3, or EIS5 form will include a Unique Investment Reference number. You'll need this when filing your claim. You'll also need to have handy:

• The name of the company you invested in
• The amount on which you're claiming relief for the current tax year
• The date the shares were issued

Step two: Make your claim

The process for claiming the various reliefs differs slightly:

Income tax relief

If you want to claim relief for the current tax year, you can either:

• Request a change to your PAYE tax code
• Request an adjustment to your Self Assessment payment on account

If you're claiming for the previous tax year, you'll do this through your Self Assessment tax return.

CGT reinvestment relief (SEIS)

You'll claim this through your Self Assessment. Fill in the claim form attached to your SEIS3 certificate, add the details to the 'Any other information' box, and attach it to your return's 'Capital Gains Tax summary' pages.

CGT deferral relief (EIS)

Claim this through your Self Assessment for the tax year in which you made the gain you're deferring. Enter the details in the 'Capital Gains Tax summary' section.

Remember, for disposal relief, you don't need to do anything - the gains are simply exempt from Capital Gains Tax when you dispose of the shares, as long as you've met the conditions.

Loss relief

If the worst happens and the company fails, you can claim loss relief against your Income Tax. For the previous tax year, do this via your Self Assessment.

Step three: Submit your claim

Once you've completed your Self Assessment with all the relevant details, simply submit it by the usual deadline (January 31st for the previous tax year).

One key point to remember: you have a generous window for claiming these reliefs.

For SEIS and EIS, you can claim up to 5 years after January 31st, following the tax year you invested.

So, if you invested in the 2022-23 tax year, you have until January 31st, 2029 to make your claim. Plenty of time, but it's always best to get these things sorted sooner rather than later.

If you're in any doubt about any of this, consult a tax professional.

The importance of advance assurance

Try saying that heading after a few drinks! While not a formal requirement, most investors will only consider backing companies that have received advance assurance from HMRC.

This confirms that the proposed investment will likely qualify for SEIS/EIS reliefs based on the information provided.

Advance assurance gives investors like you peace of mind that the reliefs will be available, removing a significant layer of risk.

So, when considering potential SEIS/EIS investments, always check whether the company has it.

💡 Good to know: Startups can apply for advance assurance via Vestd's founder-friendly flow. And, issue S/EIS shares and share certificates to investors in no time at all.

How Vestd can help

Whether you're a seasoned angel investor or just starting to explore the world of early-stage investing, it's well worth familiarising yourself with SEIS and EIS.

With the right approach, these schemes can help you build a diverse, tax-efficient portfolio that supports the next generation of British businesses. A portfolio that you can manage entirely on Vestd!

You can see the status of each investment, including the forms and documentation needed to claim your tax relief. No more scrabbling through paperwork or chasing companies for the right certificates!

Book a free, no-obligation consultation with our team to learn more.

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