EIS Guide UK
The Enterprise Investment Scheme (EIS) offers substantial tax incentives to encourage investment in early-stage UK companies. This guide covers the 30% income tax relief, CGT exemption, loss relief, IHT benefits, and the risks every investor must understand before committing capital.
EIS Tax Relief Calculator 2025/26
What Is the Enterprise Investment Scheme?
The Enterprise Investment Scheme (EIS) is a UK government programme that provides income tax and capital gains tax relief to investors who buy new shares in qualifying unlisted companies. It was established in 1994 to address the "equity gap" — the difficulty young, innovative businesses face in raising early-stage capital from institutional investors.
EIS is a risk-capital scheme. HMRC and the Treasury accept reduced tax revenue in exchange for investors taking the risk of funding companies that would otherwise struggle to raise money. As a result, the tax benefits are generous — but they come with strict conditions, and the investments themselves are inherently high-risk.
EIS Tax Reliefs at a Glance — 2025/26
| Relief Type | EIS | SEIS | VCT |
|---|---|---|---|
| Income Tax Relief Rate | 30% | 50% | 30% |
| Annual Investment Limit | £1m (£2m for KICs) | £200,000 | £200,000 |
| Minimum Holding Period | 3 years | 3 years | 5 years |
| CGT Exemption on Gains | Yes (after 3 years) | Yes (after 3 years) | Yes (dividends also tax-free) |
| CGT Deferral Relief | Yes | Partial reinvestment relief | No |
| Loss Relief Against Income | Yes | Yes | No |
| IHT Exemption (BPR) | Yes (after 2 years) | Yes (after 2 years) | No |
| Carry Back 1 Year | Yes | Yes | Yes |
EIS Income Tax Relief — 30% on Up to £1 Million
When you invest in EIS-qualifying shares, you receive a reduction in your income tax bill equal to 30% of the amount invested. The maximum annual investment limit is £1 million (giving maximum relief of £300,000 in a single tax year). This doubles to £2 million if the additional £1 million is invested in Knowledge-Intensive Companies (KICs).
How the Relief Works
The relief reduces your income tax liability — it is not a deduction from income. If your income tax bill for 2025/26 is £80,000 and you invest £50,000 in EIS shares, your relief is £15,000, reducing your tax bill to £65,000. You cannot use EIS relief to generate a repayment — only to reduce tax to nil. Any excess relief is lost (though carry-back can help, see below).
Carry Back Relief
You can elect to treat some or all of your EIS investment as if it were made in the previous tax year, subject to the same annual limits applying to that earlier year. This is useful if you had a large tax bill last year or want to time the relief more efficiently.
Capital Gains Tax Exemption
Provided the EIS shares have qualified for income tax relief and you have held them for at least three years, any gain on disposal is completely exempt from Capital Gains Tax. There is no annual limit on the size of the gain that can be exempted — invest £500,000 in an EIS company that grows 10× and your £4.5 million gain is CGT-free.
If the income tax relief is later clawed back (because a qualifying condition is broken), the CGT exemption is also lost — the gain becomes taxable.
CGT Deferral Relief
Separately from the CGT exemption on EIS shares themselves, you can defer a capital gain from any asset by reinvesting the gain proceeds into EIS shares. The gain is deferred until the EIS shares are disposed of or cease to qualify. Unlike the CGT exemption, deferral relief has no time limit on when the original gain was made (it can even pre-date EIS), and there is no upper limit on the gain that can be deferred. Deferral relief is available to non-residents.
Loss Relief Against Income
If an EIS investment fails and the shares become worthless, you can claim a loss. Unusually for CGT purposes, EIS loss relief can be set against income (not just capital gains), making it much more tax-efficient. The allowable loss is reduced by any income tax relief you received. For example:
- Investment: £20,000
- EIS income tax relief received (30%): £6,000
- Net cost after relief: £14,000
- Company fails — shares worthless. Allowable loss: £14,000
- Loss relief against income at 45%: £14,000 × 45% = £6,300
- Total tax saved (£6,000 relief + £6,300 loss relief): £12,300
- Net loss to investor: £20,000 − £12,300 = £7,700 (despite total failure)
Inheritance Tax (IHT) Exemption via Business Property Relief
EIS-qualifying shares in unlisted companies generally qualify for Business Property Relief (BPR) at 100% after being held for two years. This means the value of EIS shares is completely outside your estate for IHT purposes after two years — making EIS a powerful estate planning tool for wealthy investors, particularly those over 50 who are unlikely to benefit from the seven-year rule on lifetime gifts.
Caution: BPR is not guaranteed. HMRC can challenge whether shares qualify if the company's activities have changed. VCT shares do not attract BPR.
SEIS: Seed Enterprise Investment Scheme
SEIS is the more generous sibling of EIS for the very earliest-stage companies. From April 2023, the key terms are:
- Income tax relief: 50% on up to £200,000 per year (maximum relief: £100,000)
- CGT reinvestment relief: 50% of the amount invested in SEIS shares can be exempt from CGT on gains reinvested
- CGT exemption on SEIS gains after 3 years
- Loss relief against income
- IHT exemption via BPR after 2 years
SEIS company limits: Under 25 employees (or under 3 years old at first SEIS investment), gross assets under £350,000 before the investment, raising no more than £250,000 under SEIS in total.
SEIS is used for angel investments, friends-and-family rounds, and very early pre-seed financing. An investor can invest in both SEIS and EIS in the same tax year (subject to separate limits) and even in the same company if the SEIS raise is complete before the EIS raise commences.
VCT: Venture Capital Trusts
Venture Capital Trusts are listed investment companies that pool capital from many investors and invest in a portfolio of qualifying unlisted companies. Unlike direct EIS investments:
- VCT shares are listed on the London Stock Exchange and can be sold more easily than direct EIS holdings
- Income tax relief is 30% on up to £200,000 per year but requires a five-year minimum holding period
- Dividends from VCT shares are completely income-tax-free — a significant advantage for high-rate taxpayers
- Capital gains on VCT shares are CGT-exempt
- No loss relief against income and no IHT/BPR benefit
- No CGT deferral relief
VCTs are managed by professional fund managers and typically invest in companies ranging from pre-revenue startups through to businesses with revenues of £5–20 million. Annual management fees typically run at 2–2.5% of net assets.
Qualifying Companies for EIS — 2025/26
An EIS company must meet all of the following conditions at the time of the share issue and for three years thereafter:
- Unlisted on a recognised stock exchange (AIM and AQUIS Growth Market qualify as unlisted for EIS purposes)
- UK-based or carries on a qualifying trade wholly or mainly in the UK
- Under seven years old at first EIS investment (under 10 years for Knowledge-Intensive Companies)
- Under 250 employees (500 for KICs)
- Gross assets under £15 million before the investment (£20 million for KICs)
- Does not carry on an excluded trade (e.g., property development, finance, hotels, care homes, energy generation receiving ROC subsidies)
- Is independent — not a subsidiary of or controlled by another company
- Uses the EIS money for a qualifying business activity within 24 months
Knowledge-Intensive Companies (KICs)
Knowledge-Intensive Companies are those with higher R&D intensity or a greater number of skilled employees. Qualifying as a KIC doubles the EIS investment limit for investors to £2 million per year (the additional £1 million must be in KICs) and extends the company age limit to 10 years. To qualify as a KIC, the company must meet one of:
- Annual R&D spend of at least 15% of total operating costs in the current year or at least 10% in each of the previous three years, or
- At least 20% of employees are skilled (have a relevant higher degree or equivalent qualification)
EIS3 Certificates and Claiming Relief
Once a company has spent the money it raised, it applies to HMRC for advance assurance and then for EIS3 certificates. Each investor receives an EIS3 certificate confirming the qualifying investment. You cannot claim EIS relief until you have your EIS3 certificate — which can take 3–18 months after the investment is made. Claim relief through your Self Assessment return or by contacting HMRC if you don't normally complete a return.
How to Find EIS Investments
- Direct investments via equity crowdfunding platforms (Seedrs/Republic, Crowdcube, SyndicateRoom)
- Angel networks (Angel Investment Network, British Business Angels Association members)
- EIS funds managed by specialist boutiques (Octopus Ventures, Parkwalk Advisors, Mercia Asset Management, etc.)
- Family offices and wealth managers offering EIS portfolio services
- HMRC's Investment Management Service (for advance assurance checks on companies you've already identified)
Key Risks of EIS Investing
Capital at risk: The vast majority of startup companies fail. You should assume you may lose all money invested in any individual EIS company. Diversification across multiple companies reduces but does not eliminate this risk.
- Illiquidity: EIS shares are in unlisted companies with no guaranteed market. You may be unable to sell for many years or at all.
- Qualifying conditions: If the company or investor breaches a condition, relief is clawed back with interest.
- Timeline risk: EIS3 certificates can take 12–18 months. Relief cannot be claimed until they arrive.
- Tax law change risk: The government can alter EIS rules at any Budget.
- Connected party rules: You cannot invest in a company you are an employee of (except as a business angel meeting specific conditions), or where you or an associate has more than 30% of the shares.
Frequently Asked Questions — EIS
How much income tax relief does EIS give in 2025/26?
EIS gives 30% income tax relief on up to £1 million invested per tax year (£2 million if the additional £1 million goes into Knowledge-Intensive Companies). Maximum possible relief in a single year is therefore £300,000 (or £600,000 for KIC-heavy portfolios). The relief directly reduces your income tax bill — it cannot create a refund, only reduce tax to nil.
How long must I hold EIS shares to keep the relief?
You must hold EIS shares for at least three years from the date of issue (or from when the company started trading if later). Disposing within three years triggers clawback of income tax relief. The CGT exemption on any gain also requires the same three-year minimum hold. There is no maximum holding period — you can keep the shares indefinitely.
What is the difference between EIS and SEIS?
SEIS targets even earlier-stage companies than EIS and offers more generous relief (50% vs 30%) but on a lower investment limit (£200,000 vs £1 million). SEIS company limits are stricter: under 25 employees, gross assets under £350,000. Both schemes offer CGT exemption, loss relief against income, and IHT/BPR benefits. They can be used together in the same tax year.
Is there CGT exemption on EIS shares?
Yes. Gains on EIS shares that have received income tax relief and been held for at least three years are completely CGT-exempt. There is no upper limit on the gain that qualifies. Additionally, gains from any other asset reinvested into EIS shares can be deferred until the EIS shares are sold.
What happens if an EIS company fails?
If the company fails and shares become worthless, you can claim loss relief against income (not just capital gains). The loss is the original investment minus income tax relief received. For a 45% taxpayer: invest £10,000, get £3,000 relief, net cost £7,000, claim loss relief at 45% = £3,150 extra tax saved — so total tax saved is £6,150 on a £10,000 investment that went to zero.
Can I invest in EIS through a fund?
Yes. EIS funds spread your capital across multiple qualifying companies, reducing concentration risk. Tax reliefs pass through to investors on a per-company basis. You receive individual EIS3 certificates for each underlying company. EIS funds typically charge annual management fees of 1.5–2.5% plus performance fees. Investable minimums range from £5,000 to £25,000 depending on the fund.
Do EIS investments qualify for IHT relief?
In most cases yes, through Business Property Relief (BPR). Shares in unlisted trading companies (which most EIS companies are) qualify for 100% BPR after being held for two years, removing them from your estate for IHT purposes. This makes EIS attractive for estate planning alongside investment returns. VCT shares do not qualify for BPR.