What is SEIS? A plain-English guide for investors

In short: SEIS is a UK tax scheme that lets individual investors claim 50% income tax relief on investments of up to £200,000 a tax year into very early-stage companies, with capital gains and loss reliefs on top. It exists because the seed stage is where private capital is scarcest, and it is set out in HMRC's SEIS guidance.

Seed investing is a numbers game with a wide distribution of outcomes. Most companies at this stage have a product that is barely built, a market that is barely proven and a team that is barely formed. Left alone, rational investors would concentrate their money at a later, safer stage, and the companies that most need early capital would not get it. SEIS changes that arithmetic without changing the underlying risk.

What SEIS actually gives you

There are four distinct reliefs, and they do different jobs. Two reduce what you pay in, one removes tax on the upside, and one softens the downside.

Each of these has its own conditions, and they are covered guide by guide: income tax relief, carry back, capital gains relief and loss relief. HMRC's helpsheet HS393 is the reference document for all of them.

Which companies qualify

SEIS is deliberately narrow. It is aimed at companies at the very beginning of their trading life, not at anything that has already found its feet. Broadly, the company must:

• Be carrying on a new qualifying trade, generally less than three years old.
• Have gross assets of no more than £350,000 when the shares are issued.
• Have fewer than 25 full-time equivalent employees.
• Not have raised more than £250,000 in total under SEIS.
• Not be controlled by another company, and not be listed on a main exchange.

Some trades are excluded, including most property, financial and asset-backed activity. The detail sits in the limits guide.

What is required of you as the investor

The reliefs are not automatic. You must subscribe in cash for new, full-risk ordinary shares, hold them for at least three years, stay below a 30% interest in the company, avoid being an employee of it, and receive no value from it during the qualifying period. Break any of those and relief can be withdrawn, including relief you have already had. That is the subject of the holding period guide.

A worked example

Take a £20,000 SEIS investment by an investor with enough income tax liability to absorb the relief. Income tax relief of 50% reduces the tax bill by £10,000, so the at-risk capital is £10,000. If the company later fails and the shares become worthless, loss relief applies to that £10,000, not to the original £20,000. If instead the shares are sold at a gain after three years, that gain is free of capital gains tax.

This is why SEIS is often described as asymmetric. The downside is reduced twice over and the upside is untaxed. What it does not do is make a weak company a good investment, which is why the diligence question matters more than the tax question - see assessing risk in early-stage companies.

Where SEIS fits in a portfolio

SEIS is a portfolio instrument, not a single-bet instrument. The £250,000 company cap means each individual position is small by design, and the scheme's own structure assumes that some holdings will be written off. Building an SEIS portfolio covers spread, pacing and position sizing.

Companies created by a venture builder sit naturally at this stage, because the company is being formed at the point the investment is made. How that works in practice is set out in why invest in venture-built companies.