SEIS/EIS loss relief in insolvency and liquidation

What is SEIS/EIS loss relief and when can I make a claim?

The Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) offer tax relief for investing in eligible early-stage and growing companies. Investing in private firms comes with risks, so these tax reliefs aim to boost financial rewards and promote investment.

The main difference between the two schemes lies in SEIS targeting start-ups and very early-stage businesses, whereas EIS promotes investment in more established companies that have progressed further in their journey.

 

What is SEIS/EIS loss relief?

While your primary concern may be the Income Tax relief upon qualifying investment, you’ll also benefit from loss relief—a tax break that lessens your financial losses in case the company performs below expectations.

Purchasing shares in an SEIS or EIS company and later selling them at a loss or in the event of business failure allows you to offset that loss against your Income Tax or Capital Gains Tax liability. 

The relief’s value ranges from 20% to 45%, depending on your applicable tax rate.

 

When is the right time to claim SEIS/EIS loss relief?

If, upon selling shares, the value of your investment drops below the amount you initially invested minus the previously claimed tax relief, you might qualify for loss relief.

You’re able to apply for loss relief to reduce your tax liability for the year in which the loss occurred or the preceding year. The deduction corresponds to your Income Tax or Capital Gains Tax rate. Therefore, if you pay tax at a higher rate, you’ll receive loss relief of 40% or 20%, respectively.

 

Will I get SEIS/EIS loss relief for my liquidated company?

Investors are eligible for SEIS or EIS loss relief not only when selling shares at a loss but also if the company they invest in is dissolved or liquidated for genuine commercial reasons, with insolvency being the most common cause.

You won’t qualify for loss relief if the company is dissolved or wound up for reasons other than genuine commercial purposes.

 

What is the amount of SEIS/EIS loss relief?

Consider these brief examples:

Investing £50,000 in an EIS-eligible business allows you to claim 30% Income Tax relief, amounting to £15,000. 

This implies that only £35,000 of your investment is exposed to risk. In the event of the company’s failure and liquidation, assuming a 40% higher rate of Income Tax, your loss relief would be £14,000 (40% of £35,000).

Alternatively, investing £100,000 in a SEIS-qualified business enables you to claim 50% Income Tax relief, totalling £50,000. Consequently, only £50,000 of your investment is exposed to risk. 

In the scenario of the company’s failure and liquidation, with a 40% higher rate of Income Tax, your loss relief would be £20,000 (40% of £50,000).

 

How can I claim SEIS/EIS loss relief on my tax return?

You can apply for loss relief on an SEIS or EIS-eligible investment when filing your self-assessment tax return for the year in which the loss occurred or the subsequent year. 

For instance, if the loss occurred in the 2022/23 tax year, you should make the claim by 31st January 2025.

To claim SEIS/EIS losses, you can utilise the ‘Unlisted shares and securities’ section of form SA108. Provide details such as the year of the loss, the source of the loss, and the year(s) to which you wish to apply the loss.

You have the option to receive the relief either as a deduction from your Income Tax or Capital Gains Tax bill. If claimed as an Income Tax deduction, you can choose whether to apply the relief for the year of the loss or the preceding tax year. Alternatively, if your taxable income is insufficient in a single year, you can claim the relief for both years.

Opting for the relief as a Capital Gains Tax deduction allows you to offset your Capital Gains Tax either in the current or future tax years.

 

Which companies can gain advantages from SEIS and EIS investments?

Companies become eligible for the EIS and SEIS schemes if they maintain a permanent base in the UK and engage in substantial business activities here. 

They must also be private firms (not listed on the stock exchange) and must not control or be controlled by another company.

There are specific criteria companies need to meet for each scheme:

• For SEIS, companies should have gross assets below £200,000 and fewer than 25 employees.
• For EIS, companies need assets under £15 million and no more than 250 employees.
• SEIS-eligible companies must not have traded for over two years, while for EIS, the limit is seven years.
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What tax benefits are provided for SEIS/EIS investments?

You have the option to invest a maximum of £200,000 per tax year in a company that qualifies for SEIS, entitling you to a 50% Income Tax break. Additionally, any profits from selling shares held for a minimum of three years enjoy a Capital Gains Tax exemption.

Through the EIS, you get a 30% Income Tax break for eligible investments, capped at £1 million per tax year. Similar to SEIS, any profits from selling shares, held for a minimum of three years from their issue date, are exempt from Capital Gains Tax.

 

Read More:  

• What is an insolvency practitioner
• How to find an insolvency practitioner
• How does the process work of banks appointing their own insolvency practitioner
• Who Knows Best When Seeking Business Advice
• My company is struggling financially: what are my options

 

Do you need help?

For tailored business debt advice or concerns regarding the impact of insolvency on a business you’ve invested in, reach out to our team. 

We provide a complimentary same-day consultation, or you can schedule a free face-to-face meeting at one of our 100+ offices across the UK.