SEIS loss relief: what happens when a company fails

In short: if SEIS shares become worthless, you can claim relief on the loss net of the income tax relief you already had, and set it against either income or capital gains. The rules are covered in HMRC helpsheet HS393.

How the net loss is worked out

Start with what you subscribed. Subtract the income tax relief you received and kept. Subtract anything you recover on the shares. What remains is the allowable loss.

The rates in that example are illustrative. Your own marginal rate, and whether you have enough liability to absorb the relief, determine the actual figure.

Against income or against gains

You can choose. Setting the loss against income relieves it at your marginal income tax rate, which for higher and additional rate taxpayers is normally the better outcome. Setting it against chargeable gains relieves it at the capital gains tax rate. The choice can be made for the year of the loss or the preceding year.

There is a cap on income tax reliefs generally, which can restrict how much loss you set against income in a year. It is the higher of £50,000 or 25% of adjusted total income, and it is one of the points to raise with an accountant before deciding.

You do not have to wait for a formal dissolution

If the shares still exist but have become worthless, you can make a negligible value claim, which treats them as sold and reacquired for nothing. That crystallises the loss without waiting for the company to be struck off, and it can be backdated by up to two years in some circumstances.

What this means for how you invest

Loss relief is what makes an SEIS portfolio work arithmetically. The downside on each position is limited, the upside is untaxed, and the model assumes a spread of outcomes across a number of holdings rather than a single correct pick. That is the case set out in building an SEIS portfolio.

It is not a reason to lower the bar on diligence. Reliefs reduce the cost of being wrong; they do not improve the odds. Assessing risk in early-stage companies covers what to look at before the tax question arises.