SEIS Investment as a Pension Alternative

Recycling bins

The Social Enterprise Investment Scheme offers generous terms to investors who support risk-taking early stage companies. But now, financial advisers are encouraging high net worth individuals (HNWIs) to consider using EIS and SEIS investments to top up their pension funds.

money looking for a tax effective home.

Pension investing isn't as well-supported as it used to be.  The amount taxpayers can put in a pension each tax year has dwindlefrom £255,000 to £40,000 for higher rate taxpayers.  Now Money International is reporting on 'recycling' SEIS into pensions.

"The measures have led high earners and their financial advisers to look for other ways of maximising tax incentives to save and invest.", says Monday's  article in Money International. "These restrictions [on pensions] leave a lot of cash affluent investors with money looking for a tax effective home."

"The attractions of SEIS are the short tie-in period of three years compared to waiting until a saver is 55 years old for a pension and upfront income tax breaks." If this sounds appealing, we recommend you study the article and discuss it with your adviser.  

The FT Adviser has some helpful statistics on SEIS and an explanation of how income tax and capital gains tax are affected. 

However, we would warn investors to be careful before following this course of action. It is risky, and does not work for everybody.   For example,  a key condition of EIS and SEIS income tax relief and the exemption from capital gains tax is that only ordinary, 'full risk' shares qualify for the tax advantages offered under the schemes. Law firm DWF Law recently posted a useful article: The Enterprise Investment Scheme – a trap for the unwary!

Always think carefully and take appropriate advice before investing.