Investing in startups is a risky game.

The returns can be huge but so can be the losses. Angel investors, therefore, look for ways to minimise their liabilities and maximise their upside. So what is a proven way for angel investors to minimise their liabilities and create tax savings?

Seed Enterprise Investment Schemes (SEIS) and Enterprise Investment Schemes (EIS)

SEIS and EIS are investment scheme in the UK that promotes investments into SMEs (small to medium size businesses) such as startups by providing tax relief for investors.

1. SEIS

If a startup has a SEIS qualification then as an angel investor you can invest up to £100,000 per tax year and receive a 50% tax break in return. Individuals only and no corporations can invest. In addition, investors don't pay capital gains tax when selling their shares three years after investment.

2. EIS

If a startup has an EIS qualification then as an angel investor you can invest up to up to £1 million per tax year and receive a 30% tax break in return. Individuals and corporations can invest. In addition, investors don't pay capital gains tax when selling their shares three years after investment.

How does it work?

Before investing in a startup, confirm whether the founder(s) has/have qualified for S/EIS by seeking a document from the HMRC called "Advanced Assurance". One thing to remember when investing in S/EIS designated startups; never invest into a startup just because they have a S/EIS designation. Having a S/EIS is not an indication of whether a startup is going to be successful, however, it can make them more attractive to investors because it reduces your liabilities and creates tax savings.