Growth Investment Event Financing Growth Business 17 May 2012 Seed Enterprise Investment Scheme Presentation

1. SEED Enterprise Investment Scheme (“SEIS”)
Patrick Fletcher
17 May 2012

2. SEED Enterprise Investment Scheme (“SEIS”)
Background
Consultation in July 2011 re attracting investment into small start up
companies
Draft legislation now published. Based on existing EIS legislation with some
key differences (as opposed to more radical new legislation hinted at in
consultation).
Legislation has not received royal assent
Initially the relief is available for investments made from 6 April 2012 to 5
April 2017 but this may be extended.

3. SEED Enterprise Investment Scheme (“SEIS”)
Tax Benefits - Income Tax
50% of the amount invested or the amount of the tax liability (if lower)
Maximum investment limit of £100,000 per tax year i.e. maximum £50,000
income tax saving.
The relief can also be carried back to the previous tax year (but relief cannot
be taken before 2012/13).
Relief can be clawed back if shares sold < 3 years from date of share
issue or if conditions breached within 3 years

4. SEED Enterprise Investment Scheme (“SEIS”)
Tax Benefits – Capital Gains Tax (CGT)
Gains on shares exempt from CGT (shares must be held 3 years)
2012 / 13 only : Reinvestment relief. Gains made in 2012/13 can be reinvested
in SEIS investments during 2012/13 tax year (Gains do not come back into
charge)
Reinvestment relief is also subject to the £100,000 per tax year maximum.
Inheritance tax efficient (Business Property Relief)

5. SEED Enterprise Investment Scheme (“SEIS”)
Example
June 2012 Bob sells property for £250k and realises £100k chargeable gain
subject to 28% CGT rate i.e. £28k CGT liability.
August 2012 Bob invests £100k into a small start up engineering company.
October 2015 Bob sells the shares for £300k.
Tax Position
Bob can claim £50k SEIS income tax relief and £28k SEIS Reinvestment
Relief for tax year 2012/13 (78% rate of tax relief on his £100k investment)
The gains made in tax year 2015/16 may qualify for SEIS CGT exemption
relief.
Reinvestment Relief is available for 2012 /13 only per current draft legislation.

6. SEED Enterprise Investment Scheme (“SEIS”)
Conditions – The Investor
The investor (or an associate of the investor) cannot be an employee of the
company but is able to be appointed as a director.
Director is more generally applied than EIS concept of “Business Angel”.
In order to be able to claim the relief the investor cannot have more than 30%
of the following:-
– Ordinary share capital, or
– Issued share capital, or
– Voting power
– Assets in the course of a winding up
– Unlike EIS ignores loan capital

7. SEED Enterprise Investment Scheme (“SEIS”)
Conditions – The Company
Unquoted at time of issue
The company must carry on a qualifying trade within the 3 years of issuing the
shares.
The definition of a qualifying trade is the same definition used for EIS and EIS
share options. A qualifying trade is broadly one which is not property
development, leasing or farming.
Any trade carried on by the company at date of issue must be < 2 yrs old.
Within 3 years of the share issue all monies must be used for qualifying
business activity

8. SEED Enterprise Investment Scheme (“SEIS”)
Conditions – The Company (continued)
The maximum amount a company can raise from SEIS is £150,000.
The gross assets of the company must not exceed £200,000.
The company must also have less than 25 full time equivalent employees.
The SEIS company cannot be a under the control of another company..

9. SEED Enterprise Investment Scheme (“SEIS”)
Conclusions
Tax incentives : individuals can obtain up to 78% tax relief from income tax
and capital gains tax in 2012/13.
Consider timing of any gains on assets if planning to invest in SEIS
companies.
Complexities of EIS also apply to SEIS investments (tax simplification for
small companies requiring funds??)