When it comes to starting up companies, there are lots out there who may not be able even to get started without financial support. Several options are open to startups when it comes to financing, and one of these is to have a private investor invest their own money into the company.

To encourage investors to offer their money to these companies that need it, two UK Government initiatives have been set up.

These are the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS). Both of which offer tax breaks to those who have invested.

What is the difference between the two?

These schemes are similar, but they do come with key differences that are important to know.

SEIS is focused more on those companies that are in their very early stages. It is there to allow an individual to invest up to £100k per tax year, which for doing this, they will receive a 50% tax break.

Not only this, but the investor will also benefit from a capital gains tax exemption on any profits that arise from the sale of the shares, should they be sold after three years.

In comparison, EIS is designed more for medium-sized startups. The investors can invest as much as £1 million per tax year, and they will then receive a 30% tax break in return. They will also not pay any capital gains tax on the profit from their shares being sold after three years.

One similarity between the two is that there is no inheritance tax to be paid on the shares for at least two years, and if the shares are sold with a loss, the investor may offset the loss against their capital gains tax.

Who can apply for SEIS and EIS?

Most industries and company types will find that they can qualify for the SEIS and the EIS scheme; however, some are excluded entirely. These include:

  • Those who are dealing inland
  • Those who are trading in commodities
  • Those who are involved with banking, insurance or money lending
  • Those that provide legal and accountancy services
  • Those within property development
  • Those within the export of electricity

That said, there can be some grey areas within these rules, which means that it is always best to check with an expert in these forms of tax relief to make sure that you are eligible to apply.

Not only can these initiatives prove to help raise money for your business, helping it to grow and succeed, but they can also get you off of the ground when you need it most. Sure, it is going to be benefiting you as a start-up business owner. Still, it can also help those investors who want to feel the benefits of the scheme themselves and be able to offer a slice of their success to those who are just up and coming in the world of business.

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