Seed Enterprise Investment Scheme relief gives investors 50% of their money back as a tax break, but was capped at £150,000. Although a group might raise more than that sum, managing who could claim the relief was tricky, because you couldn’t be sure who might claim the relief out of the £150,000 you raised. Maybe it would be only people who’d invested £100,000, or maybe everyone would want to claim it.Because you couldn’t be sure, if you wanted to be able to definitively say an investment in community shares was eligible, you’d have to look to raise no more than £150,000.If you wanted to raise more than that, you’d want to enable investors to claim Enterprise Investment Scheme relief at 30% if they couldn’t get the more lucrative tax break at 50%.However, to do that, you’d first have to show how you’d actually spent (as opposed to merely earmarked or contracted) 70% of that first £150,000 before issuing shares to get the EIS tax breakThat meant your project had to have a natural break in it, as you’d have to raise the first £150,000, spend 70% of it, then do the share issue for the remaining cash on which EIS was claimed (lots of energy projects have hitherto worked like this, with the risky development phase covered by an SEIS-eligible offer, and then when there’s a lot more certainty, the actual sum to built the wind turbine would be raised by an EIS offer).However, if your project didn’t lend itself to phasing then there was a problem. If you wanted to raise £250,000 to buy a building you couldn’t start spending the first £150,000 and hope the second lot would come in – it’s all or nothing.
In this context, if your offer didn’t work for phasing, and you wanted to raise more than £150,000, SEIS was so complicated to use in practice that most offers simply avoided it, and looked to make their offer eligible for EIS instead.
That’s what’s been changed with the new rules which come into force when the Budget becomes law in August. Groups will be able to apply for both SEIS and EIS at the same time, and the requirement to have spent 70% of whatever was eligible for SEIS first will be removed.
That means in effect that the first £150,000 worth of investors can claim half their money back, and then over that, you can get 30% back.
Not only will these new rules make it a lot easier, it will also give share offers a really powerful hook to get people to scramble to be in the first £150,000, which will help drive those crucial first investments that give your project the vital sense of momentum.