The Seed Enterprise Investment Scheme (SEIS) is a UK government initiative designed to encourage private investors to fund early-stage, high-risk trading companies. By offering generous income tax and Capital Gains Tax (CGT) reliefs, the scheme mitigates the significant financial risks associated with backing new start-ups.
The UK government recently secured the long-term future of the scheme by extending the SEIS sunset clause to 6 April 2035. This extension guarantees that practitioners can continue advising clients on SEIS investments for the next decade.
To properly advise clients on what is SEIS, you must understand the investor tax reliefs, the strict holding periods, and the qualifying criteria the issuing company must meet.
Income Tax Relief on Subscriptions
When an individual subscribes for new ordinary shares in a qualifying SEIS company, they can claim a substantial reduction in their UK income tax liability.
Under section 257AB of the Income Tax Act 2007 (ITA 2007), the SEIS income tax relief rate is set at 50%. For the 2026/27 tax year, the maximum annual investment on which an investor can claim this relief is £200,000. Therefore, an individual maximising their SEIS allowance can reduce their income tax bill by up to £100,000.
“(2) The amount of the tax reduction to which the individual is entitled is the amount equal to tax at the SEIS rate for the current tax year on— (a) the amount or, as the case may be, the sum of the amounts subscribed for shares issued in that year in respect of which the individual is eligible for and claims SEIS relief, or (b) if less, £200,000. (3) In this Part “the SEIS rate” means 50%.”
The Carry-Back Mechanism
Section 257AB(5) of ITA 2007 provides a statutory carry-back facility. Investors can elect to treat all or part of their SEIS share subscription as if the company issued the shares in the preceding tax year. This allows an investor to claim relief against the previous year’s income tax liability, provided they have unused SEIS allowance (up to the £200,000 limit) in that preceding year.
Capital Gains Tax (CGT) Reliefs
SEIS offers two distinct Capital Gains Tax advantages: a reinvestment relief on the entry side, and an exemption on the exit side.
CGT Reinvestment Relief: If an investor realises a chargeable gain on the disposal of any asset and reinvests those proceeds into SEIS shares, Schedule 5BB of the Taxation of Chargeable Gains Act 1992 (TCGA 1992) allows them to exempt 50% of the reinvested amount from CGT. Because the SEIS investment limit is £200,000, an investor can exempt a maximum of £100,000 of their original gain from CGT.
CGT Disposal Exemption (The 3-Year Rule): When the investor eventually sells their SEIS shares, any resulting gain is entirely exempt from Capital Gains Tax under section 150E of TCGA 1992 (linked via section 257AE of ITA 2007).
Crucially, the investor must hold the shares for a minimum of three years to retain both the initial income tax relief and the final CGT exemption. If the investor disposes of the shares before the three-year holding period expires, HMRC will claw back the original income tax relief.
Company Qualifying Criteria (2026/27 Rules)
Not every start-up qualifies for SEIS. To issue SEIS compliance certificates, the target company must meet stringent size and age conditions at the time the shares are issued. Following the recent expansion of the scheme, the 2026/27 thresholds are as follows:
- Maximum Raise Limit: The company can raise a maximum lifetime total of £250,000 through SEIS funding.
- Company Age: The company’s “new qualifying trade” must not have been carried on by the company (or any other person) for longer than three years before the date of the share issue.
- Gross Assets: Immediately before the investment, the value of the company’s gross assets must not exceed £350,000.
- Number of Employees: Section 257DJ of ITA 2007 dictates that the company must have fewer than 25 full-time equivalent (FTE) employees when it issues the shares. Directors count as employees, but staff on maternity, paternity, or shared parental leave do not count toward this limit.
Summary of SEIS Rules (2026/27)
| SEIS Element | 2026/27 Threshold / Rule | Statutory Authority |
|---|---|---|
| Income Tax Relief Rate | 50% of the invested amount | ITA 2007, s 257AB(3) |
| Annual Investor Limit | £200,000 per tax year | ITA 2007, s 257AB(2) |
| Relief Carry-Back | Allowed to the preceding tax year | ITA 2007, s 257AB(5) |
| Holding Period | 3 years | Case law / Rules |
| CGT Reinvestment Relief | Exemption on 50% of matched gain | TCGA 1992, Sch 5BB |
| CGT Disposal Exemption | 100% tax-free gains on exit | TCGA 1992, s 150E |
| Company Raise Limit | £250,000 lifetime limit | Policy / Rules |
| Company Age Limit | 3 years trading | VCM34020 |
| Company Gross Assets | £350,000 | Policy / Rules |
| Company Employees | Fewer than 25 FTEs | ITA 2007, s 257DJ |
| Sunset Clause Date | 6 April 2035 | Autumn Statement |
Next steps for research: Review the “risk-to-capital” condition introduced under section 257AAA of ITA 2007 to ensure the target company has a genuine objective to grow and develop, rather than acting as a capital preservation vehicle.
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