Benefits of the Seed Enterprise Investment Scheme (SEIS)

The Seed Enterprise Investment Scheme (SEIS) is designed to encourage individuals to invest in start-up trading companies to help alleviate the problems such companies have in raising finance. It applies to shares issued on or after 6 April 2012. (The original cut-off date of 6 April 2017 has been removed: section 54, Finance Act 2014.)

The purpose of this note is to give an overview of the scheme, particularly the tax reliefs that are available and the main qualifying conditions.


The tax reliefs (income tax, capital gains tax (CGT) exemption and CGT reinvestment relief) are available for individuals who make direct equity investments in companies (or invest through a nominee) that qualify under the scheme (qualifying companies). The government considered, but ultimately rejected, the idea of allowing relief for investments in the form of convertible loans (see Legal update, July 2015 Budget: key business tax announcements: Venture capital schemes).


SEIS relief can apply to investments in companies that have not yet started to trade and companies that carry on research and development.


The SEIS rules are contained in Part 5A of the Income Tax Act 2007 (ITA 2007) (for income tax purposes) and section 150E-F and Schedule 5BB of the Taxation of Chargeable Gains Act 1992 (TCGA 1992) (for CGT purposes).


For HMRC’s guidance on SEIS relief, see HMRC: Seed Enterprise Investment Scheme: Guidance. Relevant sections of the venture capital manual are referred to below.


Tax relief for investors


Income tax relief
Investors may claim relief against income tax, up to an annual investment limit of £100,000, for funds used to subscribe for new ordinary shares issued by qualifying companies (section 257AB, ITA 2007).

The income tax liability of the investor is reduced by 50% of the sums invested, up to the annual investment limit, provided the shares are held for three years (section 257FA, ITA 2007). For tax year 2015-16, to obtain maximum relief a taxpayer would need taxable income of around £141,000.

A taxpayer may claim to treat some or all of the shares as issued in the previous tax year (section 257AB(5), ITA 2007) although this “carry back” facility does not apply for a year before 2012-13.

A share for share exchange during the three-year holding period will be a disposal (and SEIS relief lost) unless the exchange is to insert a new holding company (sections 257HB-257HD, ITA 2007). For this exception to apply HMRC must have given an advance clearance as to the bona fides of the exchange (as to which, see Practice note, Tax clearances: exchange of securities and reconstructions).

Interaction of SEIS and EIS income tax reliefs: practical issues
It is possible for an investor to invest into the same company and claim both SEIS and EIS income tax relief in the same tax year. However, the qualifying conditions of both regimes must be met. In particular,
•SEIS funds must be raised first.
•The SEIS and EIS investment limits must be met (see £150,000 investment limit and Practice note, Enterprise Investment Scheme (EIS): £5 million investment limit).
•The individual must have sufficient taxable income to obtain relief.
•The individual must not obtain a substantial interest in the company.

The requirement that at least 70% of the SEIS funds raised must be spent before the EIS investment is made was abolished with effect for shares issued on or after 6 April 2015 (paragraph 8, Schedule 5, Finance (No.2) Act 2015).

Capital gains tax exemption and loss relief
A SEIS investor whose income tax liability has reduced because of SEIS relief on shares is also entitled to exemption from CGT on a disposal of those shares (section 150E(2), TCGA 1992) provided the shares have been held for three years. Relief is also given for any allowable losses arising on the disposal of the shares less any income tax relief already claimed on those shares (section 150E(1), TCGA 1992).

The “no disposal” treatment accorded to a shareholder under sections 135 (exchange of securities) or 136 (schemes of reconstruction) of TCGA 1992 is, generally, disapplied. This means that SEIS CGT relief will generally be lost on a share for share exchange. However, there are two exceptions:
•The share exchange is in consequence of a new holding company being inserted above the issuing company.
•The old shares were held for the requisite three year period and the new shares are qualifying shares.
(Section 150E(9)-(13), TCGA 1992).

If income tax relief is reduced by virtue of the receipt of value provisions (discussed in Withdrawal or reduction of SEIS relief) there is a corresponding reduction in the amount of the gain that is exempt from CGT.


Capital gains tax reinvestment relief

Gains arising on the disposal of assets in tax year 2012-13 and subsequent tax years are wholly or partially exempt from CGT if a qualifying investment in SEIS eligible shares is made in the same tax year (but see below regarding carry back). (Schedule 5BB, TCGA 1992). The full amount of the SEIS qualifying investment (for tax year 2012-13) or half the amount of the SEIS qualifying investment (for subsequent tax years) is matched with the gain, which is exempted. Accordingly, for tax years 2013-14 and subsequent years a maximum of £50,000 may be exempted.

A taxpayer may elect to treat shares issued in one tax year as issued in a previous tax year (section 257AB(5), ITA 2007). That election likewise applies for reinvestment relief purposes (paragraph 8(3), Schedule 5BB, TCGA 1992). Accordingly, an investment in 2014-15 may be treated as made in 2013-14 and, therefore, matched against gains made on assets disposed of in 2013-14.

The maximum gain that can qualify for SEIS reinvestment relief is £100,000. Accordingly, there is a restriction on relief if the investor’s subscription for shares exceeds £100,000 (for HMRC’s example of how this restriction operates, see HMRC: VCM45060 – SEIS: re-investment relief: income tax relief restricted.

Deferred gains coming back into charge are excluded from relief (paragraph 1(7), Schedule 5BB, TCGA 1992).
The legislation also contains provisions for clawing back reinvestment relief (or a related portion of the relief) if SEIS income tax relief is reduced or withdrawn (or if income tax relief is reduced or withdrawn prior to reinvestment relief being claimed, for restricting the amount of SEIS expenditure that qualifies to be matched against the gain).

Conditions relating to the investor
There are a variety of complex rules that apply to the investor that determine whether the investor can obtain SEIS relief. If the investor has obtained SEIS relief and an event occurs which results in the investor ceasing to qualify or in relief being withdrawn or reduced, the investor must give notice of that fact to HMRC within 60 days of the date when he first knew of the event (section 257GE, ITA 2007).


Genuine commercial reasons
The subscription must be made for genuinely commercial reasons and not for tax avoidance purposes (section 257BE, ITA 2007). For HMRC’s guidance, see HMRC: VCM32060: SEIS: income tax relief: the investor: no tax avoidance. It is understood that the provision is mainly aimed at schemes that seek to use SEIS to avoid PAYE and NICs.


No reciprocal arrangements
There must be no reciprocal arrangements in place. This means that the investor must not subscribe for the shares as part of an arrangement that includes another person subscribing for shares in a company in which the investor or related party has a substantial interest (section 257BC, ITA 2007).


No linked loans
From the date of the issuing company’s incorporation to the third anniversary of the date of the SEIS share issue, there must be no loans to the investor or their associates which are linked to their subscription for the SEIS shares (section 257BD, ITA 2007). A loan is linked if it would not have been made or would not have been made on the terms made but for the relevant subscription. For HMRC’s guidance on this requirement (in the context of EIS, but which applies equally to SEIS) see HMRC: VCM11030 – EIS: income tax relief: the investor: no linked loans.


No substantial interest
The investor cannot hold a stake in the issuing company (or any subsidiary) (a “substantial interest”) at any time in the period beginning with the date of incorporation of the issuing company and ending on the third anniversary of the issue of the SEIS shares, which:
•exceeds 30% of the issued share capital, ordinary share capital or voting rights; or
•would entitle the investor to more than 30% of the assets of the company (or subsidiary) in the event of its winding up or in any other circumstances (sections 257BB and 257BF, ITA 2007). See also Ask, Will a 30% investment in a company combined with a convertible loan made to the company amount to a substantial interest for SEIS purposes?.


The 30% substantial interest test is calculated by reference to nominal value. Accordingly, a SEIS investor could invest for shares at a premium without exceeding the 30% threshold.


The investor will also hold a substantial interest if the investor controls the issuing company or a subsidiary. Control here means the power of the investor to secure through share or voting power or other powers conferred by the articles or other regulatory document in that or another body corporate, that the affairs of the relevant company are conducted in accordance with the investor’s wishes. (Sections 257BF(6) and 995, ITA 2007.)

A person, particularly a founder, will not be treated as having a substantial interest in the issuing company merely because he holds subscriber shares, provided that the company has not issued any other shares (other than subscriber shares) and has not begun to carry on, or make preparations for carrying on the trade (section 257BF(5), ITA 2007).

In determining whether an investor has a substantial interest in the issuing company, there is attributed to him any rights and powers of any person who is an “associate” of such investor. Associates include, amongst other things, business partners and relatives (section 257HJ and section 253, ITA 2007). Relatives include spouses and civil partners, parents, children and grandchildren (but not brothers or sisters) (section 253(2), ITA 2007).


No employees
The investor (or any associate) must not be an employee of the issuing company (or any subsidiary, at any time during the period from the date the shares are issued to the third anniversary of issue. The investor (or associate) may however be a director (paid or unpaid) (section 257BA, ITA 2007).


Conditions related to shares
To retain the SEIS reliefs, the shares must be held for at least three years (section 257FA, ITA 2007; section 150E(2)(a) and paragraph 5(1)(c) of Schedule 5BB, TCGA 1992).


The shares must be fully paid up in cash when they are issued. Accordingly, shares must not be issued at a time when the company has not received payment for them. An undertaking to pay cash at a future date is not sufficient. The shares must be full risk ordinary shares and must not be redeemable or carry preferential rights to the company’s assets on a winding up. Further, the shares must not carry preferential rights to dividends if the right depends (to any extent) on a decision of the company, a shareholder or any other person or where the right to receive dividends is cumulative (that is, where a dividend which has become payable is not in fact paid, the company is obliged to pay it at a later time). (See section 257CA(2)-(3), ITA 2007)


Conditions relating to the issuing company
There are complex rules which determine whether the issuing company is a qualifying company under the SEIS. The key requirements are discussed below.


Gross assets test
The value of the issuing company’s gross assets (or if the issuing company is a parent company, the group’s gross assets) must not exceed £200,000 immediately before the shares are issued (section 257DI, ITA 2007). This test need only be satisfied when the shares are issued.


HMRC has issued Statement of Practice (SP2/06) in relation to the EIS gross assets test, which sets out how HMRC determines the value of a company’s assets. HMRC’s approach is to value the issuing company’s gross assets by aggregating the value of its assets as shown on the balance sheet (assuming the balance sheet is drawn up at the time of the issue and that it is prepared in accordance with generally accepted accounting practice). A company’s gross assets are its assets without regard to its liabilities.


In the case of a group, HMRC will look at the balance sheet of each company rather than the consolidated balance sheet of the group. The gross assets test is calculated by adding the gross assets of each group company but ignoring goodwill on consolidation and inter-company balances. Shares held in subsidiaries and loans to subsidiaries are excluded from the calculation of gross assets.


Investee must be unquoted
The issuing company must be unquoted (that is, not listed on a recognised stock exchange) when the shares are issued and there must, broadly, be no arrangements for it to become quoted (section 257DF, ITA 2007). For SEIS purposes, AIM is not treated as a recognised stock exchange, although in practice it would be unusual for such companies to have their shares admitted to trading on AIM.


Trading requirement
The issuing company must meet the trading requirement throughout the period starting with its incorporation and ending on the third anniversary of the relevant share issue. However, any interval between incorporation and commencing business are ignored.


Trading requirement: singleton companies
 The issuing company must exist wholly for the purpose of carrying on a new qualifying trade (incidental purposes may be ignored) (section 257DA, ITA 2007). Most trades are qualifying trades provided that they are conducted on a commercial basis with a view to making profits and the trade does not include a substantial amount of excluded activities (sections 189 and 192-200, ITA 2007).A qualifying trade is a new qualifying trade if both of the following conditions are met:
•The trade commenced (whether by the issuing company or any other person) less than two years before the SEIS shares were issued.
•The issuing company did not carry on another trade at any time before the relevant company began to carry on the qualifying trade (section 257HF, ITA 2007).For HMRC’s guidance, see HMRC: VCM34020 – SEIS: income tax relief: issuing company: trading requirement.


Trading requirement: groups
A parent company of a trading group can qualify for the SEIS if it has one or more subsidiaries and the business of the group as a whole does not include a substantial amount of non-qualifying activities. Broadly, non-qualifying activities are investment activities (unless they are carried on intra-group in which case they are ignored) and excluded activities.For HMRC’s guidance, see HMRC: VCM34020 – SEIS: income tax relief: issuing company: trading requirement.


Excluded activities
The excluded activities are the same as the EIS excluded activities in sections 192-199 of ITA 2007 (section 257DA, ITA 2007) and include:
•Dealing in land, shares or commodities.
•Property development.
•The operation or management of hotels or nursing homes.
•Financial activities.
•Shipbuilding and coal and steel trades.
•Receiving royalties and licence fees.
•The generation or export of electricity, the generation or production of heat, gas or fuel (and for shares issued on or after 30 November 2015) making available reserve energy generation capacity (or where such capacity has been made available, using it to generate electricity) if these activities are “subsidised”. Subsidies may be UK or foreign. Activities are subsidised if, among other things, feed-in tariffs (for shares issued on or after 23 March 2011), DECC renewable obligations certificates or renewable heat incentives (for shares issued on or after 17 July 2014) are received in respect of them. The receipt of these subsidies ensures that financing is available to companies that engage substantially in these activities. Exceptions from these exclusions applied for subsidies for energy generation that relied on anaerobic digestion or hydroeclectric power. However, for shares issued on or after 6 April 2015, these subsidies are no longer excepted. Additionally, certain community energy organisations that were excepted from the exclusions are no longer excepted with effect from 30 November 2015 (see Legal update, Regulations exclude community energy organisations from scope of VCTs, EIS and SEIS). It was announced in the 2015 Autumn Statement that all energy generation activities will become excluded activities with effect for shares issued on or after 6 April 2016 (see Legal update, 2015 Autumn Statement and Spending Review: key business tax announcements: Venture capital schemes: more changes). Draft Finance Bill 2016 legislation to implement this measure was published on 9 December 2015. To track the progress of the measure to implementation, see Tax legislation tracker: owner-managed business: Venture capital schemes: exclusion of all energy production.


Meaning of substantial
There is no statutory definition of “substantial” in the SEIS legislation (and this is one of the areas on which the government sought views on, see: Legal update, Venture capital schemes consultation). In the context of EIS and VCT reliefs, HMRC has confirmed that it regards non-qualifying or excluded activities as substantial if they account for more than 20% of the total activities of the issuing company or, as the case may be, the group (see HMRC Venture capital manual: VCM3010: Excluded activities: meaning ofexcluded activities’).

There are a number of measures that may be regarded as appropriate in measuring activities including:
•Income/turnover (comparing income from trading activities with income from excluded activities).
•The company’s asset base (comparing the assets employed that give rise to trading income versus the assets employed that give rise to income from the excluded activities).
•Income/capital employed.
•Time spent by employees.

Although VCM3010 refers only to turnover and capital employed, HMRC’s Tax Bulletin 62 set out alternative measures (see HMRC: Tax Bulletin 62). Although the discussion of “substantial” in Tax Bulletin 62 is in the context of taper relief and the substantial shareholding exemption, it is considered that the same measures discussed should apply equally in the context of EIS and SEIS relief.

In Steven Price and others v HMRC [2013] UKFTT 297 (discussed in Legal update, Share option and convertible share tax avoidance scheme fails (First-tier Tribunal)), the First-tier Tribunal determined that a company’s non-trading activities were not substantial (in the context of share loss relief). The tribunal concluded that while the activities of issuing options and issuing and redeeming shares for the purposes of an avoidance scheme were not trading activities and the amounts of money involved were substantial:
•The actual amount of time and effort spent by the SHL director in performing these tasks was not substantial in the context of the business activities of the trading subsidiary.
•The group’s profits from the scheme, although substantial relative to the annual profits of its trading subsidiary, were used to finance the subsidiary’s trade by way of loan and could be said to made for the purposes of that trade.

Independence requirement
The issuing company must not be a 51% subsidiary of another company or under the control of another company (or another company together with persons connected with that other company) at any time from the date of its incorporation to the three year anniversary of the relevant share issue (section 257DG(2), ITA 2007).Amendments introduced in the Finance Act 2013 resolve an issue with this requirement for shares issued after 6 April 2013. Unlike the EIS rules, which apply the control test at the date of issue of shares, the SEIS rules apply it from the date of incorporation. This meant that if a corporate shareholder held the subscriber share of an off-the-shelf company, the company failed the independence requirement. Section 56 of the Finance Act 2013 ensures that off-the-shelf companies are not disqualified provided that control exists only during a period where the company has issued only subscriber shares and has not yet begun, or begun preparations for, its trade or business (see Legal update, 2013 Budget: key business tax announcements: Seed enterprise investment scheme: concession for off-the-shelf companies).There must also be no arrangements in place during that period for the issuing company to cease to be an independent company. This is subject to an exception where the issuing company is acquired by a new company (section 257HB, ITA 2007).For HMRC’s guidance, see VCM34080 – SEIS: income tax relief: issuing company: control and independence requirement.


No risk capital investment
No EIS or VCT investment must be made in the issuing company or any qualifying subsidiary on or before the day the relevant shares are issued (section 257DK, ITA 2007).Following an SEIS share issue, the issuing company can issue EIS qualifying shares or receive VCT investment. The previous requirement that at least 70% of the monies raised by the SEIS issue must have been spent was removed for shares issued on or after 6 April 2015 (paragraph 8, Schedule 5, Finance (No.2) Act 2015).


Requirements as to purpose of share issue and who must carry it on
The shares must be issued in order to raise money for the purpose of a qualifying business activity, which is (to be) carried on by the issuing company or a 90% subsidiary (section 257CB, ITA 2007).A qualifying business activity is the activity of carrying on a new qualifying trade, preparing to carry on that trade or research and development activities from which a new qualifying trade will be derived or from which a new qualifying trade will benefit (section 257HG, ITA 2007).Throughout the period commencing with the issue of the shares and ending on the third anniversary of issue, only the issuing company or a 90% subsidiary may carry on the qualifying business activity (section 257DC, ITA 2007). However, this requirement is satisfied if the issuing company issues shares to raise money to acquire an existing trade carried on by another company. HMRC regards the issue of shares as preparatory to the carrying on of a new qualifying trade by the issuing company or one of its 90% subsidiaries (section 257DC(2) and (3), ITA 2007 and VCM34040 – SEIS: income tax relief: issuing company: issuing company to carry on qualifying business activity). Note, however, that at the date of issue of the shares, the trade (no matter who first commenced it) must be less than 2 years old.


Use of money raised
The money raised by the share issue must be spent within three years of the relevant share issue. The money must be employed only for the purpose of the qualifying business activity (see above) but insignificant amounts used for other purposes may be ignored. Employing money on the acquisition of shares or stock in a company does not of itself amount to employing the money for the purposes of a qualifying business activity. (Section 257CC, ITA 2007)

Qualifying subsidiaries and control requirements
Subsidiaries of the issuing company, which do not actually use the money raised from the investors, must be qualifying, that is, 51% subsidiaries (section 257DM, ITA 2007).This means that the issuing company must have beneficial ownership, directly or indirectly, of more than 50% of the subsidiary’s ordinary share capital and there must be no other person that has control of the subsidiary.Nor must there be any arrangements in place such that the subsidiary will cease to be a qualifying subsidiary.The control test looks at the ability of a person to control the subsidiary by virtue of shareholding, voting powers or other powers conferred by the articles or other documents (such as an investment agreement).


Care must be taken if the issuing company is involved in a 50:50 joint venture arrangement as this may cause the requirement to be breached (the joint venture company would be a subsidiary but not a qualifying subsidiary).

It is also necessary to check whether any person has the right to acquire shares in the subsidiary in the future (for example, a lender may have a convertible loan or, perhaps, put and call options may exist which gives a person the right to acquire shares in the subsidiary).


Any interest that is owned as to less than 50% will be considered an investment (which may cause the trading activities requirement to be breached).


If any subsidiary is a “property managing subsidiary”, that is, a company whose business consists of more than 50% in the holding or managing of land or property deriving its value from land, that subsidiary must be a 90% subsidiary of the issuing company (section 257DN, ITA 2007).


In addition, the issuing company must not control (whether by itself or together with persons connected with it) any company which is not a qualifying subsidiary (section 257DG, ITA 2007). This test goes wider than the qualifying subsidiaries requirement because the issuing company will be regarded as controlling a company if it, together with any persons connected with it, control the company. Connection for these purposes is defined in section 993 of ITA 2007 (see section 257(2), ITA 2007) and includes persons “acting together”. Steele v European Vinyls Corporation BV [1996] STC 785 is usually cited as authority for the proposition that shareholders observing the terms of a shareholder’s agreement will be considered to be acting together. As with the qualifying subsidiaries requirement, this will cause particular issues if the issuing company is involved in a joint venture arrangement.


UK permanent establishment
The issuing company must have a UK permanent establishment throughout the period starting with the issue of the shares and ending three years later (section 257DD, ITA 2007). Permanent establishment is defined in section 191A of ITA 2007 as either a fixed place of business (branch, place of management etc) through which the business of the issuing company is wholly or partly carried on or an agent in the UK. Accordingly, if the issuing company is:
• A UK-registered singleton company, it will have a UK permanent establishment.
• A UK-registered holding company carrying out administrative and management functions in the UK, it will have a UK permanent establishment irrespective of where its trading subsidiaries are located.
• A non-UK registered holding company (with no trading function), it must carry out some administrative and management functions in the UK. It will not be sufficient for trading subsidiaries to be located in the UK. For HMRC’s guidance on this test, see HMRC: VCM34050 – SEIS: income tax relief: issuing company: UK permanent establishment requirement.


Number of employees
The issuing company (or group if the issuing company is the parent company of a trading group) must have fewer than 25 full-time employees (or part-time equivalent) (section 257DJ, ITA 2007). This test is considered at the time the relevant shares are issued.


£150,000 investment limit
The issuing company (or group if the issuing company is the holding company of a trading group) cannot raise more than £150,000 through SEIS investments or other aid that constitutes state aid (within the meaning of Commission Regulation EC No 1998/2006). The £150,000 limit applies to aggregate amounts raised by the most recent issue, all other share issues made on the same day and in the three years immediately preceding that day and state aid. (Section 257DL, ITA 2007.)


Investee should not be in financial difficulties
The issuing company will not qualify if it is in “financial difficulties” when the shares are issued (section 257DE, ITA 2007).A company is in financial difficulty if it is reasonable to assume that it would be regarded as a firm in difficulty for the purposes of the Community Guidelines on State Aid for Rescuing and Restructuring Firms in Difficulty (2004/C/244/02). For HMRC’s guidance, see HMRC: VCM34060 – SEIS: income tax relief: issuing company: financial health requirement.


No disqualifying arrangements
This test is intended to ensure that companies established for the purpose of accessing venture capital reliefs (SEIS, EIS or VCT reliefs) are excluded from the scheme.Arrangements are “disqualifying” if both of the following conditions are met:
• The main (or one of the main) purpose(s) of the arrangements is to secure that the issuing company carries on a qualifying activity and that the shares issued by it qualify for relief.
• an amount representing all or most of the monies raised under the scheme, is in the course of the arrangements paid to or for the benefit of a party to the arrangements (or a connected person); or
• in the absence of the arrangements, it would be reasonable to expect that the greater part of the issuing company’s activities would have been carried on as part of another business.
(Section 257CF, ITA 2007.)


No partnerships
In the period commencing with the incorporation of the issuing company and ending on the third anniversary of the relevant share issue, neither the issuing company nor any 90% subsidiary must be in partnership (section 257DH, ITA 2007).Applying for SEIS clearance and formal approval


Advance assurance
HMRC encourages issuing companies to seek advance assurance that the company meets the SEIS qualifying conditions. Advance assurance must be applied for before the shares have been issued. For our standard advance assurance application, see Standard document, Seed enterprise investment relief scheme: assurance application to HMRC.


Formal approval and issue of SEIS certificates
Application for a compliance certificate will need to be made. This is done by the issuing company providing HMRC with a compliance statement (see HMRC: SEIS1), which confirms that, in respect of an issue of shares, the SEIS qualifying conditions are met (in so far as they relate to the company). HMRC will not accept electronic version of the compliance statement as it requires sight of the original signature.
A compliance statement may not be issued until at least 70% of the money raised by the issue has been spent for the purposes of the qualifying business activity.Formal approval is given by HMRC authorising the company to issue compliance certificates. The issuing company must then issue the compliance certificates to the SEIS investors so that they can make claims for relief in their self-assessment tax returns. The SEIS investors must claim relief no later than the fifth anniversary of the filing date for the relevant tax year. (For example, if shares are issued in 2012-13, a claim must be made by 31 January 2019).It was announced in the 2014 Autumn Statement that a new online process will be available from 2016.


Withdrawal or reduction of SEIS relief
SEIS relief for investors may be withdrawn or reduced in certain circumstances, including where:
• The SEIS investor disposes of his or her shares within three years (section 257DA, ITA 2007). A disposal between spouses or civil partners does not count.If the SEIS investor grants a call option, which binds the investor to sell any of the relevant shares, the grant is treated as a disposal. Similarly if a person grants the SEIS investor a put option, which, if exercised would bind the grantor to purchase SEIS shares, SEIS relief is withdrawn. (Sections 257FC and 257FD, ITA 2007.)
• The SEIS investor (or any associate) receives value (other than value which is insignificant, which is generally less than £1000) from the issuing company (or a connected company) at any time beginning with the date of incorporation of the issuing company and ending on the third anniversary of the issue of the relevant shares. The definition of when value is received is extremely wide and includes:
• the repayment, redemption or repurchase of share capital;
• the repayment of certain debt owed to the investor;
• the release of the investor from any liability;
• the transfer of an asset to the investor for less than market value; and
• the acquisition of an asset from the investor for more than market value.
• The issuing company acquires all of the issued share capital of another company and that other company is or was at any time from the date the issuing company was incorporated to the third anniversary of the issue of the relevant shares, controlled by the SEIS investor (section 257FQ, ITA 2007).
• The issuing company is not a qualifying company or the issuing company does not use the money for the purpose of the qualifying business activity or does not use the money within the three year time limit.
SEIS relief may be withdrawn or reduced by HMRC making an assessment or issuing a notice. HMRC has 6 years from the end of the tax year in which the termination date (that is, the third anniversary of the issue date) falls to do so. (Sections 257FR and 257GB, ITA 2007.)