The Dancing Floor


 

Seed Enterprise Investment Scheme (SEIS)

The Seed Enterprise Investment Scheme (SEIS) offers great tax efficient benefits to investors in return for investment in small and early stage startup businesses in the UK. The Dancing Floor’s production company, Shining Edge Ltd, has obtained SEIS approval from HMRC.

SEIS Facts and Figures

SEIS offers a number of tax relief opportunities to investors, ranging from automatic reductions to loss relief and capital gains exemption. Here are the benefits:

• Individual income tax relief of 50% of the amount invested, with the potential to split the relief between the tax year of your investment and the previous tax year.

Exemption from Capital Gains Tax on the earnings from your shares so long as you have held them for a minimum of three years

• Eligibility to receive Capital Gains Relief of up to 50% of the profits if you sell within three years and reinvest the profit into other SEIS companies

Loss relief in the event that the company fails. The amount you receive in loss relief is equal to your investment minus the 50% you received back (item 1) multiplied by your tax rate (an example of this can be found below)

And….. it is comforting to the investor to know that, if the shares are disposed of at a loss, you can elect that the amount of the loss, less any Income Tax relief given, can be set against income of the year in which they were disposed of, or any income of the previous year, instead of being set off against any capital gains.

Below are some examples of the journey that your investment could take.

SEIS in action

(for each example we will suppose payment of Capital Gains at 28% and an income tax rate of 45%.)

Scenario 1: The Dancing Floor’s production company, Shining Edge Ltd, doubles in value over the course of three years.

You invest £10,000 and in the year you invest you are immediately able to receive 50% of your investment back as a tax bill deduction. When you later receive your £20,000 from the sale of your shares, this is free of capital gains tax under SEIS rules provided the shares have been held for at least three years, so that the profit on your investment including tax relief is £15,000.

Scenario 2: The Dancing Floor’s production company, Shining Edge Ltd, breaks even

If you invest £10,000 and in three years' time the company is of the same value as when you invested, in the year you invest you are immediately able to receive 50% of your investment back as a tax bill deduction, and, when you later receive your £10,000 from the sale of your shares, there is no capital gain. The company breaks even and tax relief offered by the SEIS means you have actually gained £5,000.

Scenario 3: The Dancing Floor’s production company, Shining Edge Ltd fails

If you invest £10,000 and the company fails, in the year you invest you are immediately able to receive 50% of your investment back as a tax bill deduction, and you will later be able to claim loss relief of £2,250 (assuming a tax rate of 45%), so the tax relief offered by SEIS means your loss would only be £2,750 out of the original investment.

To re-cap: if you put £10,000 this year into The Dancing Floor’s production company, Shining Edge Ltd, you will immediately receive income tax relief of 50% of your investment, which corresponds to a £5,000 reduction in your income tax bill. You are entitled to Loss Relief if the venture fails and you are entitled to Capital Gains Tax Relief if the venture succeeds, providing you hold your shares for three years.

 


 

 

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