SEIS reinvestment relief: what is it and how does it work?
Reinvestment relief is one of a range of generous SEIS tax reliefs the Seed Enterprise Investment Scheme (SEIS) offers, providing strong incentives for investors. Even some experienced investors aren’t aware of the full extent to which this relief can minimise their tax bill while complementing other investments in a balanced portfolio.
How does SEIS reinvestment relief work?
Capital gains reinvestment relief allows an individual who has disposed of a chargeable asset - that would normally be liable to capital gains tax (CGT) - to treat up to 50% of the gain as capital gains tax exempt should they reinvest some or all of it into SEIS qualifying shares. This provides an effective way to manage CGT liabilities while taking advantage of investment opportunities within the SEIS framework.
To gain full SEIS reinvestment relief the investor must have claimed income tax relief on the investment, before choosing to reinvest a sum of their gains at least equal to the value of their CGT chargeable gain. Investors also benefit from additional income tax relief when making further significant investments into SEIS investment opportunities. Should they invest less, reinvestment relief is limited to half the amount invested.
Chargeable assets (assets qualified by the government as liable to capital gains tax) among other items, include personal possessions (exceeding £6,000), properties (excluding your first home) and shares (other than those being held in tax efficient schemes).
These assets are charged at a rate of 20% CGT for higher rate and additional rate taxpayers in the UK with the exception of residential property - for which a 28% deduction applies. The annual CGT-free allowance on the sale of chargeable assets stands at £3,000 as of the 2024/25 tax year.
Below are the marginal rates of CGT and the income ranges they correspond with as of the 2024/25 tax year.
Tax Bracket |
Income range |
CGT rate on assets |
CGT rate on property |
---|---|---|---|
Basic rate taxpayer |
£12,571 to £50,270 |
18% |
18% |
Higher rate taxpayer |
£50,271 to £125,139 |
24% |
24% |
Additional rate taxpayer |
Over £125,140 |
24% |
24% |
For example: this would mean that, should an additional or higher rate taxpayer sell shares gained elsewhere than the SEIS and realise a £40,000 gain, where usually they would be liable to pay £9,600 in CGT (24%), using SEIS reinvestment relief—should they reinvest the full sum of the gain into SEIS qualifying shares—this charge would be reduced by 50%, saving the individual £4,800. This flexible approach ensures that the investment remains tax efficient while opening up robust opportunities for further investments.
What is the maximum you can invest with SEIS reinvestment relief?
In any given year, the maximum an investor is allowed to claim via SEIS reinvestment relief is no more than half of the SEIS income tax relief maximum for that year.
In the 2024/25 tax year, the maximum figure an investor is able to claim SEIS income tax relief on is £100,000, making the maximum SEIS reinvestment relief for this year £50,000.
SEIS Reinvestment Relief Example: At its very peak, should an individual sell a property (other than their first home) and realise a £100,000 gain, where usually they would be liable to pay £24,000 in CGT, using SEIS reinvestment relief—should they reinvest the full sum of the £100,000 gain into SEIS qualifying shares—this charge would be reduced by 50%, saving the individual £12,000 per year in capital gains tax. This example demonstrates how a well-planned investment strategy, combined with SEIS incentives, can significantly reduce a tax bill.
Investors can use SEIS reinvestment relief relatively flexibly around their personal tax liabilities, with this relief able to be utilised on a gain made up to 5 years after a SEIS investment was made. Should the investor instead wish to claim reinvestment relief on a gain that was realised in the previous tax year, the SEIS is able to facilitate this too through its carry back feature.
Though the extremes of this generous tax relief show just how significant of an impact it can have on reducing an investor’s tax bills—especially in the cases of high net worth and experienced investors—the ability to be able to cut CGT tax in half is an invaluable tool. Additionally, the inclusion of loss relief, alongside extra loss relief opportunities, means investors can offset potential downsides even further, especially following the recent CGT hike.
Incorporating SEIS as part of a balanced investment portfolio
Whilst an undeniably powerful tax relief available to investors that choose to utilise the SEIS reinvestment relief isn’t the scheme’s only added advantage.
From 50% income tax relief to capital gains tax exemption and loss relief, a host of generous tax reliefs are available under the SEIS, each angled with the goal of minimising downside risk, maximising investor returns and subsequently reducing the investor’s tax bills. The scheme’s unique blend of incentives makes it an attractive option for both seasoned and new investors alike.
It is important to note that early-stage investing comes with real risks; however, by actively seeking out promising, impact-driven startups and reputable co-investment opportunities, the Seed Enterprise Investment Scheme offers investors a rare opportunity to positively diversify their portfolio, generate potentially high growth, and significantly reduce their tax bill—all whilst contributing to the UK’s dynamic startup ecosystem.
Whilst it is important to note that early-stage investing comes with real risks, by actively seeking out promising, impact driven startups and reputable co-investment opportunities, the SEIS offers investors a rare opportunity to positively diversify their portfolio, generate potentially high growth, and significantly reduce their tax bill all whilst contributing to UK’s dynamic startup ecosystem.