Income Tax Act 2007 section 257AAA

Risk-to-capital condition

Section 257AAA sets out the risk-to-capital condition that must be met for shares to qualify under the Seed Enterprise Investment Scheme (SEIS), ensuring that the investment represents a genuine commercial risk rather than a capital preservation arrangement.

• The issuing company must have genuine objectives to grow and develop its trade over the long term, assessed at the time the shares are issued.
• There must be a significant risk that investors will suffer a capital loss exceeding their net investment return, taking into account the value of SEIS tax relief.
• HMRC may consider a wide range of factors including the company's growth plans, income sources, asset base, subcontracting arrangements, ownership structure, and how investment opportunities are marketed.
• Where the issuing company is a parent company, the risk-to-capital condition is applied by reference to the group as a whole, treating the combined activities of all group companies as a single trade.