Has anybody looked at SEIS investments

chucknorris

bigadaj wrote: »

I would never say that tax relief overcomes investment risk but with that level of relief, it means that the government is taking more risk than you are at the end of the day.

I had a look at them a couple of years ago when I had a small cgt bill, but didn't have the time or level of comfort to progress with it. I have ventured into vcts this year as I'm getting close to pension limits and like the relative diversification though have put in less than 1% of assets.

I think it's the relative level of risk exposure rather than the absolute sums involved, if you are looking at six or seven figure gains then that level of relief on a small percentage of your gain might look more attractive to me, though this is an area in which diversification is absolute essential as some or even many of these will produce little or no return, including capital.

At that level of tax relief it was worth looking at, but I am not comfortable with the risk (which I suspected would be the case). I thought that it was worth posting just in case someone had something to add that I hadn't thought of.

tg99

chucknorris wrote: »

I wouldn't miss £100k for that long, but it is the risk that puts me off, rather than the illiquidity. How did the SEIS investment work out for you?

It's early days as I only made the investments earlier this year so will have a better idea in the next few years as exits will typically be targeted around 5-7 years from purchase.

Like you I am wary of the risk of such investments and it should be expected that some will go completely bust but hopefully there will be enough multi-baggers to offset this. However, as noted in your comments above, the tax reliefs are pretty generous so if you are a higher or additional rate taxpayer and also have a sizeable CGT bill then even if the investment goes to zero the downside is very limited. Infact, up until a few years ago the tax reliefs were even more generous such that you could actually get tax and loss reliefs exceeding the amount of the original investment if it went to zero!

My EIS/SEIS portfolio also introduces a bit more diversification into my portfolio given the pretty low correlation to mainstream equity markets.

Malthusian

The long and short of it is that you have to be prepared to lose all your money. The tax relief means the loss isn't as big as it would be on its own; for example, if you invest £100,000 and got tax relief in full and had a big CGT bill, and the SEIS goes down the tube, then effectively you've only lost £25,000. (As you would have lost the other £75,000 in tax anyway.)

However you've still lost £25,000, irrecoverably. For me that is still too much to lose, so I wouldn't personally go for it. But they will certainly be attractive for some.

(Actually, I would flatter myself if I said that was the real reason. For the tax relief to be effective you do of course need to be paying that much in tax in the first place, which I don't :-))