One of the selling points of Seed EIS relief is the ability to shelter capital gains made in 2012/13: it can top up the value of the relief from 50% of the investment to up to 78%. A couple of points have become clear about the way in which the CGT relief works.
The first is that it operates in conjunction with the carry-back provisions. These allow a SEIS investment made in 2013/14 to be treated, both for Income Tax and CGT purposes (but not for only one or the other of those purposes) as if it were made in 2012/13. This means that if you have capital gains in 2012/13 which you want to shelter with SEIS investment you don’t absolutely have to make the investment before 6 April 2013: you can carry back an investment made in 2013/14. But note that the capital gain in question must have been made in 2012/13.
The second is the interaction between EIS, SEIS and CGT deferral and reinvestment reliefs. Let us explain. All SEIS investments will by definition meet the requirements of EIS investments: SEIS is a “subset” of EIS. But not only are the Income Tax reliefs different (EIS gives a tax break of 30% of the investment, SEIS 50%): so too are the CGT benefits. First, you can use EIS to defer recognition of gains made up to three years before the EIS investment is made; and second, the deferred gains come back into charge at a future date, typically when the EIS shares are sold. SEIS on the other hand isn’t a deferral relief – it’s a vanishing trick whereby gains reinvested into SEIS shares simply disappear forever; but it’s available only for gains made in 2012/13 (see above – do try to keep up). And here’s the thing: you can’t “mix and match” SEIS and EIS reliefs. So if an investment potentially qualifies for both (or rather, either) of the EIS and SEIS reliefs and you can’t use the special SEIS CGT relief because you don’t have any eligible gains, the option of claiming the higher SEIS Income Tax rate of relief but the EIS CGT deferral isn’t open to you. You can either (1) Claim SEIS Income Tax relief and no CGT relief or (2) Claim the lower EIS Income Tax relief rate and the EIS CGT deferral.
Clear as mud? We feared so. For more, please get in touch with your usual BKL contact or use our enquiry form.