By Tom Elliott, Patner At Crowe Clark Whitehill

The following points set out the Government’s proposal on SEIS as published on 6 December 2011. The draft legislation issued on that day may be subject to amendment and final details are expected in the Chancellor’s Budget in March 2012.

1. Concept originally proposed in Consultation Document issued by HM Treasury in Summer 2011 — was to be called Business Angel Seed Investment Scheme but name changed as a result of consultation feedback

2. Relief available on funds invested by way of subscription for ordinary share capital. Original proposal suggested that equity AND debt would qualify for the relief — proposal on debt dropped due to complexity and potential for abuse

3. Enhanced tax relief available for seed investment in early stage trading companies

4. Qualifying conditions for SEIS are the same as for EIS but with additional restrictions:

- Company must have been incorporated within the two years preceding investment

- Company must have no more than 25 full-time equivalent employees at time of investment

- Company must have gross assets of no more than £200,000 pre investment

- Company must not have previously raised funds under EIS and/or from Venture Capital Trusts

- There is a cumulative limit of £150,000 of funds raised per company under SEIS — once this limit is reached, future fundraising can be under EIS and/or VCT if appropriate, provided at least 75% of the funds raised under SEIS have been spent.

5. SEIS will be in force for shares issued on or after 6 April 2012 and before 6 April 2017. The scheme therefore has a limited life of 5 years only but the proposed legislation allows for this period to be extended by Treasury order. The Government plans a review of the Scheme in 2016 before deciding whether to extend.

6. An investor making a qualifying investment will receive tax relief at 50% on the SEIS investment, up to an annual (tax year) investment limit of £100,000 per investor

7. Where the previous year’s allowance is unused, an investment can be carried back so as to be deemed to have been made in the preceding tax year, but not earlier than 6 April 2012

8. Any gains realised on the disposal of SEIS shares will be exempt from CGT provided the shares are held for at least 3 years and the qualifying conditions have not been breached in that same period

9. For 2012/13 only, there is an additional CGT exemption for investors on gains realised on disposal of any asset where the gain is reinvested into SEIS shares

10. Where an investor utilises the maximum relief in 2012/13, tax relief of £78,000 is received on an investment of £100,000, giving a net cost of investment of £22,000.

If you have a question for Tom, you can email him at Tom.Elliott@crowecw.co.uk

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