SEIS Investment: Rules and Best Practices for Startup Investors

Posted by Mo Rassolli on Nov 23, 2020 08:08: AM
Mo Rassolli

The Seed Enterprise Investment Scheme (SEIS) is one of the UK government initiatives which encourage innovation by allowing private investors a significant tax break when investing in early-stage, 'high-risk' companies. However, some of them are not aware of the rules and best practices that they can do before investing in this scheme.

In this blog post, I will explain what SEIS is and what are the rules and best practices for startup investors.

What is SEIS?

The SEIS (Seed Enterprise Investment Scheme) was introduced by HM Revenue & Customs (HMRC) in April 2012. It was developed by the United Kingdom government to help small, early-stage companies raise funds providing various tax reliefs on investments made into qualifying companies through individual investors.

SEIS offers some of the world's best tax reliefs. SEIS allows up to 50% of your investment to be claimed back in income tax relief provides significant reductions on capital gains tax.

For early-stage startups, SEIS allows you to raise the capital you need to expand by providing significant tax relief to investors in your business, making a future investment in your company more attractive.

SEIS helps your company raise capital when it newly starts to trade by offering tax relief to investors who obtain new shares in your company with tax relief.

Here are the rules you should be aware of before investing in SEIS.


The investor must have UK income

When you're investing in SEIS, you must have UK income (although you don't need to be a UK resident to claim SEIS. For the relief to retain, the shares must keep for a minimum duration of three years from the date of issue. The relief may be withdrawn or reduced if they dispose of within three years or if any of the qualifying requirements cease to meet before the date of termination of the shares (three years from the date of issue shares).

Must not have 'Substantial Interest'

A SEIS' Substantial interest' is described as being directly or indirectly owned or entitled to acquire more than 30% of the company's interest. The 30% figure also takes into account the shareholdings of associates.

In line with this, for any time from the incorporation of the company until the third anniversary date of the issue of the shares, you must not have a 'substantial interest' in issuing company.

Not a company employee

From the date of the share issue, you and any of your associates should not be an employee of the company up to the third anniversary (although you may be a paid director). Your business colleagues, trustees, and relatives (spouses, civil partners, parents or children) consider as an 'associate.' Your siblings, however, are not considered as associates.

Additionally, you can still be a director and receive a reasonable amount of compensation for this position.

It is not intentional to dissuade investors who wish to become directors of the company in which they invest (or of a subsidiary) and make their business expertise available to it. These investors are known as 'business angels'. Despite obtaining payment for their work, are permitted to apply for Income Tax relief. The rule of allowing in business angels, however, is tightly drawn. It only happens when:

  • The only way in which the person is related to the business after the investment is that individual (or an associate) is a director who receives, or is entitled to receive, remuneration


  • At any point in time when the shares are issued, the director has never been affiliated with the company. The director is also not involved in carrying on any part of the trade now carried on by the company (or its subsidiary), either as an owner of that trade or as a director or employee of the owner
  • The issue of shares of a previous issue of qualified shares in respect of which the director fulfilled the condition just mentioned is made before the termination date
  • The issue of shares shall take place before the date of termination of the previous issue of qualifying shares in respect of which the director fulfilled the condition mentioned above,
  • The issue was made before the date of termination of the previous issue of shares which the director is entitled SEIS relief.

You can visit this link for more information on this.

No related investment arrangement

You would not qualify for SEIS relief if you subscribed to the shares as part of a reciprocal arrangement involving anyone else subscribing to shares in a business in which you have a substantial interest.

The investor has no tax avoidance

You are eligible for SEIS relief if your subscription is made for legitimate business purposes and not as part of an agreement or scheme for avoiding taxes.

Under SEIS, you can invest up to £150,000, but there is a limit to the tax relief you can use, which is capped at £ 50,000. The estimation of the income tax relief does not take into account any amount you invested exceeding £ 100,000.

Limit on Relief

There is a limit on the amount on which relief can be obtained for any year of the assignment. The maximum amount for 2018 to 2019 onwards is £1 million or £2 million as long as any amount over £1 million is invested in one or more knowledge-intensive companies.

Under SEIS, you can invest up to £ 150,000, but there is a limit to the tax relief you can use, which is capped at £50,000. The calculation of the income tax relief does not take into account any amounts you invest exceeding £100,000.

The investor had no link loans

You or your associates should not make any loan related to your share subscription at any point in time from the company's incorporation until the third anniversary of the date of issue of the share. This includes cases where credit is given, or debt due from you or your associate is assigned.

Best Practices For Startup Investors

The most important thing when you are investing in startups is not to lose yourself in the hype.

Although several startups have been a source of huge benefits and returns, most of them either don't last long or suffer a long time before fading.

Although you can never be confident about what distinguishes the two, here is a list of few practices for startup investors.

A Clear Notion of your Business

Before investing in a startup, you should have a solid understanding of:

  • what their business model is;
  • what is their purpose is; and
  • what is their vision or mission.

Without knowing these things, it isn't easy to sell an idea, product, or service to anyone. Investors need to know there are a future and a market for your product or service.

Taking Some Risks

Even when there are many advantages or benefits when investing in SEIS, there are also risks.

These risks include:

  • There may be no more than 30% of an individual's involvement in the company.
  • Investors must stay for a period of 3 years.
  • There's no easy way to sell the shares because companies are not listed on the stock market.

However, take note that the benefits outrun the risks. When you want your investment to be a success, you need to take risks. If you can't accept much risk in your investments, then you will earn a lower return.

Highly Engaged

One component of all successful startups is their capacity to engage with and learn from people at all levels of their business. This involves responding to data from test-markets early on, taking the advice from investors, advisors, mentors, and customers seriously, and transparency and accountability for what's going on within the company as it grows.

No business will go through its entire life without making any mistakes. The most reliable way for a startup to deal with or bypass its growing pains is to convey what is going on. You can also listen to the feedback that comes with it.

Ensure You Understand and Examine the Company

Always sift through the company and see whether you still feel confident about its potential for growth before investing. Start by reviewing the business on those merits and know whether you still feel sure about its growth potential.

The importance of conceptualising a thoughtfully designed, carefully constructed investment plan is something that cannot be overstated. Ensure that you understand and examine the company before investing.

A well-research Market

You need to understand and assess the market before opening your doors. Research and understand the industry you wish to enter, as well as its major players and your future competitors. When you know the demand for a product, it plays a significant role in a startup's success. Extensive research of the target market base is necessary to perform until an accurate picture of demand forms.


There are various rules and practices when investing in SEIS. If you would like to invest in SEIS, you can start reading this guide, or you can schedule an appointment with us today.

Trendscout UK specialises in the government initiatives of Seed Enterprise Investment Scheme (SEIS).

Trendscout is a platform located in the heart of London, connecting angel investors and founders, specialising in the development of purposeful, considered partnerships that drive profit and growth.

Hundreds of startups are reviewed by our team of experts every year. We evaluate every company we work with and analyse its potential, mission and ethical practices, ensuring that every startup we serve will always align with our values.

With over 30 years of industry knowledge and experience, our network of innovative startups and investors allows us to recognise up-and-coming opportunities before they reach the masses.

When you schedule an appointment with us, rest guaranteed that someone will get in touch with you and help you every step of the way.