Seed enterprise investment scheme ― calculating clawback of relief

By Tolley

The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

Seed enterprise investment scheme ― calculating clawback of relief
Withdrawal of relief
Gift or disposal of SEIS shares
Receipt of value
Administration
Interest on overdue tax

The Seed enterprise investment scheme (SEIS), like the Enterprise investment scheme (EIS), is designed to encourage individuals to invest money in shares issued by qualifying unquoted companies trading wholly or mainly in the UK.

The scheme became effective from 6 April 2012 and HMRC have since published some basic guidance . See the Seed enterprise investment scheme (SEIS) – introduction guidance note for an overview of the scheme.

FA 2012, Sch 6

Withdrawal of relief

Income tax relief is withdrawn if, within three years of subscription:

•the shares are gifted or sold to someone other than the spouse / civil partner (ITA 2007, ss 257FA-257FB)
•the investor or his ‘associate’ receives ‘value’ from the company, or a person connected with the company (see the Seed enterprise investment scheme – scheme criteria guidance note for definitions of these terms) (ITA 2007, ss 257FE-257FO)
•the company acquires all the share capital of a company under the control of a controlling investor (ITA 2007, s 257FQ)
•relief is subsequently found not to be due (ie use of the money raised requirements are not met or the company ceases to be qualifying) (ITA 2007, s 257FR)

For further guidance on situations where relief is withdrawn or reduced, see the Seed enterprise investment scheme – withdrawal of relief guidance note.

There are anti-avoidance provisions to prevent an investor from obtaining income tax relief on his SEIS subscription, then selling the shares shortly afterwards. If the investor disposes of his shares within three years of issue, there will be a clawback of the income tax relie