Investors pounce on start-up incentive scheme amid fears of Labour tax rises
Flows into a government-backed scheme offering tax reliefs for investors in UK start-ups have surged since the general election, new data has revealed, as fears grow of possible tax rises under the new Labour government.
Flows of new money into the Seed Enterprise Investment Scheme (SEIS) soared 188 per cent year on year between the election on 4 July and the end of August, according to broker Wealth Club.
The research also found that the number of investors taking advantage of the scheme roughly tripled over the period.
The SEIS was introduced in 2012 to encourage private investment into early-stage, higher-risk businesses by granting tax reliefs to more experienced investors.
The surge in flows comes as fears grow of tax increases in October’s Budget. Wealth Club said the SEIS was “probably the most tax efficient vehicle available” as Labour reportedly considers hiking capital gains tax.
Investors using the SEIS get up to 50 per cent income tax relief and 50 per cent capital gains tax relief, while any gains are also tax free.
Still, the increase can also be explained by an improving outlook for venture investors as economic sentiment shows signs of recover after a torrid two years that saw valuations and fundraising plummet.
“Since the election everyone has been expecting tax rises, with wealthier investors likely to bear the brunt,” said Alex Davies, founder and chief executive of Wealth Club.
“Many are feeling twitchy, and SEIS is a hugely tax efficient way to invest for those prepared to take the extra risk. At the same time, we’ve been in the doldrums for a couple of years, but one good thing to come out of it is vastly improved valuations.
“If this trend continues, it may be the start of a virtuous cycle: better sentiment leads to more investment in young companies, which create a disproportionate number of jobs and economic growth, which in turn improves investor sentiment, leading to more investment. It’s what the country needs.”
The government said last week that the broader Enterprise Investment Scheme and the Venture Capital Trust scheme would both be extended by a decade to April 2035.