The SEIS three-year holding period and how relief is withdrawn

In short: SEIS relief becomes final only after three years from the date the shares were issued, and HMRC can withdraw it if you dispose of the shares, become connected with the company, receive value from it, or the company loses its qualifying status. The withdrawal rules sit in HMRC's Venture Capital Schemes Manual.

When the clock starts

From the date of issue of the shares. Not the date you transferred the money, not the date the company started trading, and not the date HMRC authorised the certificate. Check the share certificate date, because it is the one that governs everything else.

What triggers withdrawal

Transfers between spouses or civil partners living together are not treated as disposals for this purpose, and the shares carry their SEIS status across. Shares passing on death are also not a disposal.

The knock-on effect on the other reliefs

Withdrawal of income tax relief takes the other reliefs with it. Capital gains disposal relief depends on income tax relief having been given and retained, and reinvestment relief can be clawed back too. Loss relief is recalculated, because the net loss is measured after the relief actually retained.

Things outside your control

The company must keep meeting its own conditions for three years: continuing a qualifying trade, not being taken under the control of another company, and not using the money for anything other than the qualifying business activity. If it breaches those, relief goes even though you did nothing wrong.

That is a reason to look at governance and reporting before investing, not just at the product and the market. Companies built inside a venture builder carry that structure from the start, which is part of what our model is for.

What about a good exit inside three years?

It still costs the relief. A sale at a profit before the third anniversary withdraws income tax relief and makes the gain chargeable. It can still be the right commercial decision, but the tax consequence should be part of the arithmetic rather than a surprise afterwards.