Changes to the tax rules that come into force next week will boost funding for startups and give investors more incentive to back them, according to DSW Ventures, an early-stage investor.
As from 6th April, the amount companies can receive under the Seed Enterprise Investment Scheme (SEIS) – which provides tax breaks for those investing in early-stage businesses – rises from £150,000 to £250,000.
Businesses will qualify for up to three years from their first commercial sale, instead of two years at present. Meanwhile the annual limit on the amount of investment on which individuals can claim income tax and CGT relief will double, from £100,000 to £200,000.
“The enhanced SEIS scheme was one of the few bright spots in last November’s otherwise disastrous mini-budget, offering a strong reason for investors to support tech ventures and university spin-outs in their very first days,” said Keith Benson of DSW Ventures.
“SEIS has always offered generous tax breaks – especially the 50p in the £1 of immediate tax rebate – but take-up was limited because of the relatively low allowance of £150,000 per company, as well as tight restrictions on the age of the business.
“This had the effect of restricting the flow of capital to startups, particularly university spin-outs and tech ventures that have a high risk profile but could really benefit from this kind of support.”
The government projects that the changes could result in £50m additional SEIS funding a year for businesses, enough to fund an additional 200 startups with the SEIS maximum of £250,000 each.
In the 12 months to 6 April 2021, the latest period for which figures are available, £175m was raised under the SEIS scheme by 2,065 companies.
DSW Ventures says the changes could encourage more individuals to invest under the scheme and lead to the launch of more SEIS funds, such as its own DSW Ventures SEIS Fund, which it announced recently.
Benson adds: “While early-stage companies are high-risk investments, the SEIS changes will be welcomed by the growing number of sophisticated angel investors who back startups.
“They will also lead to the launch of more SEIS funds, which are an excellent way for investors to access this exciting asset class and the associated tax breaks while mitigating their risk across a portfolio of professionally managed investments.”
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