Seed Enterprise Investment Scheme – The meaning of ’Connected’ & ‘Associate’

The Seed Enterprise Investment Scheme (SEIS) is a government incentive that provides extremely lucrative income tax and capital gains tax benefits to investors in return for investing in early stage startup and ‘seed’ businesses in the United Kingdom.

The SEIS scheme was introduced to boost economic growth by promoting entrepreneurship and enterprise. Compared to the USA, the UK has often been seen to be lagging when it comes to startup culture.

The scheme has existed since the Autumn Statement of 2011 when it was introduced by the then Chancellor of the Exchequer George Osborne. Modifications were also introduced at the same time to the Enterprise Investment Scheme (often used in conjunction with SEIS when fundraising) and Venture Capital Trust.

One of the main conditions for the investor under SEIS is that they cannot be Connected with the company.

An investor will Connected with the company:

  • if the investor and the investor’s associates’ interest in the company exceeds 30%. ‘Interest’ includes the company’s share capital, voting rights or assets on a winding up; or
  • if the investor or any of the investor’s associates is an employee of the company – note that there is no restriction on being a director of the company.

So, who is an associate? For these purposes, the legislation classes an associate as:

  • spouses
  • civil partners
  • children
  • grandchildren
  • parents
  • grandparent
  • partners in any business partnership of which the investor is a member.
  • the trustee or trustees of any settlement in relation to which the individual claiming relief

The following are not considered to be associates:

  • brothers
  • sisters
  • nephews
  • nieces
  • uncles

Step-children and unmarried ‘partners’ (not in the business sense) are not classed as associates. This can provide unexpected tax planning opportunities where entrepreneurs are looking to raise investment from other family members – we’ve even known one client use this as an excuse to put off marriage!

If you have any specific questions regarding the Seed Enterprise Investment Scheme, please get in contact. We’re here to help.