2 types of venture capital funds in the UK
The Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) are both initiatives by the UK government designed to encourage investment in small and medium-sized businesses.
While they have similar objectives, there are several key differences between the two schemes:
|SEIS Fund||EIS Fund|
|Company Stage||SEIS is specifically targeted at very early-stage companies. These are businesses that are just getting started and need seed capital.||EIS is aimed at slightly larger, more established companies that may be seeking expansion capital.|
|Investment Limits||Under the SEIS, a company can raise up to £250,000 in total.||For EIS, a company can raise up to £5 million each year, and a maximum of £12 million in its lifetime.|
|Company Size||To qualify for the SEIS, a company must have 25 or fewer employees and gross assets of up to £350,000.||EIS qualifying companies can have up to 250 employees and gross assets up to £15 million.|
|Tax Relief||Investors can claim income tax relief of 50% on investments up to £200,000 per tax year. If the SEIS shares are disposed of after 3 years, any gain is free from Capital Gains Tax. If the investment is a loss, you can offset the loss against your capital gains tax or income tax liabilities. There is also a Capital Gains Tax reinvestment relief for the tax year in which the investment was made.||EIS offers 30% income tax relief on investments up to £1 million (or £2 million if investing in knowledge-intensive companies) per tax year. It also offers potential for tax-free capital gains after the three-year holding period. If the EIS investment results in a loss, you can choose to offset the loss against your capital gains tax or income tax liabilities. Also, if the EIS shares are held at the time of the investor's death, they become free from Inheritance Tax.|
|Where to find them?||Top 57 SEIS Funds||Top 65 EIS Funds|
Each scheme has its own set of detailed rules and requirements, so it's important to do your research and consult with a financial advisor to fully understand the implications of your investment.
In general, the SEIS is higher risk given it targets early-stage companies, but it also offers higher potential tax reliefs. On the other hand, EIS targets more established companies, which may carry slightly lower risk, but it also provides slightly lower tax reliefs compared to SEIS.
It's also worth mentioning that both schemes carry significant risk, as investing in small and early-stage businesses always does, regardless of the tax incentives.
It's probably worth checking with a tax lawyer before you go all in with these types of investments.