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SEIS

Some help needed please

My clients A&B are to set-up newco D Ltd with investor C. SEIS status will be obtained.

A&B will each own 40% of the 100 x £1 shares, purchased at par. C will pay £50k/£100k (TBC) for the remaining 20%. 

C wants to be bought out in 12-18 months. If A&B purchase the shares, I assume that this 20% won’t be classed m as a SEIS investment for relief purposes?

Thinking long-term, would it be better for a co buyback of C’a shareholding, so that for an eventual sale? The full shareholding of A&B will then be classed as SEIS investment. 

Appreciate any thoughts / pointers. 

Thanks

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30th Sep 2018 11:22

Doesn't a qualifying investor have to have less than a 30% interest? Therefore neither A nor B will qualify. (unless I have misunderstood your question.

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to chicken farmer
30th Sep 2018 13:09

You are of course correct - the deal had started as 5 x 20% shareholders and I hadn’t changed my thinking.

If my clients’ shareholdings were:
A 20%
A Ltd 20%
B 20%
B’s girlfriend 20%

Would relief be allowable for the 3 individuals.
Would A Ltd get any sort of relief?

Apologies, this isn’t something I have much experience of, just wanting to get a handle.

Thanks

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to atleastisoundknowledgable...
01st Oct 2018 10:46

SEIS can be a minefield therefore a detailed reading of Part 5A of ITA is advisable. In particular Chapter 2 which deals with the investor.

In answer to your particular points;

1. the relief is only due to individuals so A Ltd gets no relief.
2. shares have to be acquired by subscription, not purchase so any shares purchased from C will not qualify.
3. If A only has 20% then he will not have breached the substantial interest test. Although the holdings of associates are taken into account (and he presumably controls A Ltd) that company is not an associate for these purposes - see s. 253 which applies by virtue of s. 257HJ(1).
4. B will similarly not breach the substantial interest test as his girlfriend will also not be an associate of his.

S

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to chicken farmer
01st Oct 2018 11:08

Thanks for that - very helpful indeed.

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