SEIS: income tax relief: introduction: form and amount of SEIS income tax relief
The relief takes the form of a reduction in the individual’s Income Tax liability. Except where it is restricted as explained below, the amount of the reduction is equal to tax at the SEIS rate of 50% on the amount of the subscription (this excludes any costs incidental to the subscription) or, if that would exceed the liability for the year, whatever amount will reduce that liability to nil. The maximum investment on which an investor may claim relief for any year is £100,000.
Carry back election
An investor may elect under ITA07/S257AB(5) to have part or all of an issue of shares treated as though acquired in the tax year preceding that in which the shares were actually acquired. This is subject to the maximum annual investment limit for that earlier year (£100,000). The SEIS rate for the earlier year is then applied to the shares treated as acquired in the earlier year and relief given accordingly. As there is no SEIS rate for periods before 6 April 2012 an election under S257AB(5) will be effective only for shares acquired in 2013-14 and later tax years. See VCM35160 for how to make claims.
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The relief reduces tax liability in accordance with the steps explained in Chapter 3 of Part 2 ITA07. First of all, total income chargeable to income tax is calculated. Then personal allowances and other reliefs (such as loss relief) are deducted. Income tax liability is then calculated by applying the appropriate income tax rates to the result. Finally SEIS relief is used to reduce that tax liability.
To decide whether a reduction equal to tax at the SEIS rate would eliminate the tax liability, it may be necessary to decide in which order reliefs taking the form of reductions in liability should be taken. ITA07/S27 provides that reliefs are to be deducted in the following order: first of all, VCT relief, then EIS relief, then SEIS relief, then various others as listed in S27.
The circumstances in which the amount of the reduction may be restricted are:
- where the individual has received value from the company (see VCM36040+), and
- where the aggregate amounts on which the individual has claimed relief exceed the limit for the year (see below).
In the first case the amount on which the reduction is calculated is the amount of the subscription less the amount of the value, and in the second case it is the amount of the limit for the year.
Jenny invests £20,000 in the tax year 2012-13 (6 April 2012 to 5 April 2013) in SEIS qualifying shares. The SEIS relief available is £10,000 (£20,000 at 50 percent). Her tax liability for the year before SEIS relief is £15,000 which she can reduce to £5,000 (£15,000 less £10,000) as a result of her investment.
James invests £20,000 in the tax year 2012-13 in SEIS qualifying shares. The relief available is £10,000 as for Example 1. However his tax liability for the year before SEIS relief is £7,500. James can reduce his tax bill to zero as a result of his SEIS investment, but loses the rest of the relief available of £2,500 (£10,000 less £7,500).
See VCM35020 for cases where the maximum investment amount is exceeded in a year.
See VCM35170 for the claims procedure.