Seed Enterprise Investment Scheme

SEIS is designed for very early-stage companies that have been trading for no more than three years, have gross assets under £350,000, and have fewer than 25 full-time equivalent employees at the time of investment. The company must be UK-incorporated and not listed on a recognised stock exchange. From April 2023, individual investors can claim 50% Income Tax relief on up to £200,000 invested per tax year, and any gains on SEIS shares held for at least three years are exempt from Capital Gains Tax. A company can raise a maximum of £250,000 under SEIS in its lifetime. Both the company and the investor must meet HMRC's qualifying conditions throughout the minimum three-year holding period or reliefs may be withdrawn. Companies should apply to HMRC for advance assurance before approaching investors.

In practice, SEIS is the reason many first-time investors will look at a pre-revenue company at all, because the relief materially changes their downside. Founders should treat the qualifying conditions as a design constraint on the whole fundraise rather than a tax question to settle afterwards: the share class you issue, the order in which you take money, and even the wording of an investor side letter can all break the relief.

Worked example: a two-year-old software company raises £150,000 under SEIS from four angels. Each subscribes for new ordinary shares carrying no preferential right to assets on a winding up. An investor putting in £40,000 claims 50% Income Tax relief, reducing the real cost of the investment to £20,000. The company applies for advance assurance first, then issues the shares, waits until it has traded or spent at least 70% of the money, and only then submits form SEIS1 so HMRC can issue the SEIS3 certificates the investors need for their tax returns. The company later raises a larger round under EIS, keeping the two rounds cleanly sequenced because SEIS money must be raised and largely spent before EIS shares are issued.

The pitfalls are unforgiving. Relief is withdrawn if the investor sells within three years, if the company loses its qualifying trade, or if the investor turns out to be connected to the company — broadly, an employee, or someone holding more than 30% of the shares or voting rights, counting associates. Directors can invest under SEIS even though they cannot under some other reliefs, but the connection tests still apply. Advance assurance is not a guarantee; it is an opinion based on the facts you disclosed.

SEIS is the earlier-stage sibling of EIS, and sits alongside debt options such as a Start Up Loan and grant routes needing match funding. If you are planning a raise, read our guide to the Seed Enterprise Investment Scheme and then angel investment, and take specialist tax advice before you issue any shares.