SEIS explained in plain English

The Seed Enterprise Investment Scheme is a government scheme that gives you tax relief for buying new shares in very young UK companies. The point of it is straightforward: the earliest stage of a company's life is where investment is hardest to find and where the risk of losing everything is highest, so the tax system takes some of that risk off your shoulders.

It is not a way of making a risky investment safe. It reduces what a loss costs you. The company can still fail.

You can claim income tax relief at 50% of what you invest, on up to £200,000 in a tax year. So a £20,000 investment reduces your income tax bill by £10,000, provided you have paid at least that much tax.

If you hold the shares for at least three years and the company keeps its qualifying status, any gain when you sell is free of capital gains tax. If the investment fails, loss relief lets you set the loss, net of the income tax relief you already had, against your income or gains.

There is also reinvestment relief, which exempts half of a capital gain you reinvest into SEIS shares in the same tax year.

The company must be small and young: it can raise up to £250,000 under SEIS in total, it must have gross assets of no more than £350,000 when the shares are issued, it must have been trading for less than three years, and it must have fewer than 25 full-time equivalent employees.

Most companies apply to HMRC for Advance Assurance before a raise. That is HMRC saying, on the information given, that the company looks likely to qualify. It is useful comfort, but it is not a guarantee, and it says nothing about whether the investment is a good one.

Relief can be withdrawn. The common causes are selling the shares within three years, the company losing its qualifying status, you becoming connected with the company (broadly, holding more than 30% or being an employee), or receiving value from the company during the qualifying period.

You also need enough income tax liability in the year to absorb the relief. If your tax bill is smaller than the relief available, you cannot claim the excess as cash.