EIS Budget 2025 Changes Explained.

Introduction to Enterprise Investment Scheme

The Enterprise Investment Scheme (EIS) is a long standing UK tax relief scheme to foster innovation and growth among early-stage, higher-risk companies. Designed to attract private capital, the EIS offers a suite of tax reliefs to eligible investors who support qualifying businesses. Chief among these is income tax relief of up to 30% on investments of up to £1 million per tax year, which may be of more interest to investors who understand the risks and eligibility requirements and seeking to reduce their income tax liability while backing high-growth potential ventures.

In addition to income tax relief, investors may be eligible to benefit from capital gains tax exemption on profits from EIS shares held for at least three years, as well as loss relief and capital gains tax deferral on other gains reinvested into EIS-eligible companies. With recent reforms expanding the range of companies and increasing investment limits, EIS continues to play a role in channelling capital into innovative UK businesses, offering tax reliefs and supporting the growth of the country’s venture capital ecosystem.

Key EIS and VCT Changes from April 2026

These measures are proposed and subject to parliamentary approval. Limits and reliefs apply only where all scheme conditions are met.

• EIS and VCT annual company investment limit increases to £10 million (new limits apply from April 2026)
• Knowledge-Intensive Companies (KICs) annual limit rises to £20 million (new limits apply from April 2026)
• Lifetime funding limits increase to £24 million for regular companies and £40 million for KICs (new limits apply from April 2026)
• Gross assets threshold (gross asset limits) rises to £30 million pre-investment and £35 million post-investment (new limits apply from April 2026)

The gross asset limits for EIS companies will double from £15m to £30m before investment and from £16m to £35m after investment, which means some larger, scaling companies may now qualify for EIS and VCT schemes.

The annual limits for funds that companies can raise under EIS will double from £5m to £10m for regular companies and from £10m to £20m for knowledge-intensive companies starting April 2026. The lifetime limits for EIS will increase from £12m to £24m for regular companies and from £20m to £40m for knowledge-intensive companies starting April 2026.

The company’s lifetime investment limit is being increased, allowing companies to raise more capital over their lifetime without losing eligibility for EIS and VCT support.

Income Tax Relief. A Clear Divergence Between EIS and VCTs

The Budget also confirmed a rebalancing of incentives. The changes affect both the EIS and VCT scheme, with VCT income tax relief set to reduce from 30% to 20% from April 2026, while EIS income tax relief remains unchanged at 30%. This divergence highlights a difference in the level of upfront income tax relief available under EIS compared with VCTs, and it is important to note that EIS relief applies specifically to new share subscriptions, whereas VCT relief operates differently. The distinction between EIS relief and VCT relief can be a key consideration for investors evaluating the two schemes 1.

This change may shift capital towards EIS structures, particularly among investors willing to accept higher risk in exchange for enhanced growth potential and tax efficiency. Some investors may review their allocations between VCT’s and EIS with EIS having the higher up front income tax relief benefit of 30%, reinforcing the importance of understanding the differences between VCT and EIS in the context of UK government reforms.

EIS in the Context of the Current Tax Environment

Set against a backdrop of frozen income tax thresholds, tighter pension reliefs and higher taxation of investment income, EIS is one area where the existing incentive structure has largely been maintained under the latest Budget announcements1.

EIS eligibility may be relevant for companies seeking to attract investment, as it can provide tax reliefs for eligible investors that can make start-ups more appealing to investors and key employees.

The 2025 Budget also includes a call for evidence on tax support for entrepreneurs to shape future tax incentives.

Key features of EIS continue to include:

(These features are subject to conditions and qualifying requirements.)

• 30 % income tax relief
• The ability to claim loss relief at the investor’s marginal tax rate, subject to individual circumstances
• Capital gains tax deferral on other gains
• 0 % CGT on qualifying exits after the minimum holding period
• Eligibility for investment in a broader range of growth-stage companies
• The Enterprise Management Incentive (EMI) scheme is designed to help smaller, high growth companies acquire and retain talent, and is considered the gold standard for employee share plans in the UK. The EMI scheme allows employees to pay no income tax or NICs on the grant or exercise of EMI options, and employers benefit from a corporation tax deduction equal to the difference between market value at exercise and the price paid by the employee at granting. EMI options can provide significant benefits to employees upon a future sale of the company or shares.
• The government plans to expand the EMI regime to support more companies, and the 2025 Budget aims to ensure that scale-ups can attract the talent and capital they need.
• Employee ownership trusts (EOTs), introduced in 2013, offer attractive tax benefits for sellers, but recent relief reductions may affect their attractiveness for business owners considering a future sale.

VCT income tax relief will reduce from 30 percent to 20 percent from 6 April 2026, while EIS income tax relief will remain unchanged at 30 percent.

Capital Gains Tax Implications

Recent adjustments to the capital gains tax (CGT) regime have important consequences for both investors and companies. The increase in the Business Asset Disposal Relief rate from 10% to 18% on the first £1 million of gains means entrepreneurs and business owners may need to consider these changes when thinking about the timing and structure of company sales. Additionally, changes affecting Employee Ownership Trusts (EOTs) could make this route less appealing for some, unless there is a strong commitment to employee ownership. Despite these shifts, the EIS and VCT schemes as they continue to offer full CGT exemption on qualifying investments.

This means that investors who support companies through these schemes can potentially realize gains from future sales without incurring capital gains tax, making EIS and VCT a potential option for investors to consider as part of a diversified portfolio, in particular those seeking to optimise after-tax returns while supporting business growth and entrepreneurship in the UK.

Impact on Savings Income

The evolving tax system, particularly the reduction in VCT income tax relief from 30% to 20%, is set to influence how investors approach their savings income. While this change may reduce the immediate tax benefit for VCT investors, the simultaneous increase in investment limits for both EIS and VCT schemes opens up new opportunities to access valuable tax reliefs. Furthermore, the reduction of the cash ISA limit from £20,000 to £12,000 may lead some individuals to review the range of savings and investment options available such as EIS and VCT, which offer the potential for higher returns and potential tax advantages. However, EIS and VCT investments are not comparable to cash saving products or ISA’s and they have different risk/return characteristics than cash savings products and ISA’s, and investors may lose some or all of their capital.

With higher tax rates now applying to property and savings income, investors are increasingly seeking ways to optimize their portfolios for tax efficiency. EIS and VCT schemes, with their enhanced income tax relief and exemption from capital gains tax, continue to provide tax reliefs for qualifying investments helping maximize tax paid on investment income and maximize the benefit of their savings.

Remaining Unchanged

Amidst the sweeping changes to the tax system and investment landscape, several key elements remain unchanged, providing stability and continuity for investors and companies. The Enterprise Management Incentive (EMI) scheme, which offers tax-advantaged share options to employees, retains its personal grant limit of £250,000, despite an increase in overall scheme limits. The Seed Enterprise Investment Scheme (SEIS) also continues unchanged, maintaining its role as a vital source of tax relief for those investing in early stage companies. These enduring features underscore the government’s ongoing support for UK businesses, ensuring that the enterprise investment scheme, VCT, and SEIS continue to offer valuable tax reliefs and incentives. By maintaining these schemes, the government helps foster growth, innovation, and investment in the UK’s dynamic business sector, even as other aspects of the tax system evolve.

FAQ’s

When do the new EIS rules take effect?

All changes apply from 6 April 2026, giving investors and fund managers time to plan.

Has EIS income tax relief changed?

No. EIS income tax relief remains at 30 %, while VCT relief reduces to 20 %1.

What is the main impact of the higher EIS limits?

They may allow larger and more mature growth companies to remain EIS-eligible for longer, increasing deal sizes.

Why do Knowledge-Intensive Companies benefit more?

KICs receive higher annual and lifetime funding limits, reflecting their greater capital requirements and longer development cycles1.

Why does EIS matter more in the current tax environment?

Against a backdrop of reduced or frozen allowances elsewhere, EIS continues to offer a range of tax reliefs that some investors may consider alongside exposure to UK growth companies.

References

1 Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) changes – GOV.UK

2 Budget 2025: Last chance for up to 30% VCT income tax relief

Please note: 

Important Information – This article is provided for information purposes only and does not constitute investment advice, tax advice, or a personal recommendation. You should not rely on this information when making an investment decision. Tax reliefs are subject to legislation, may change, and depend on individual circumstances. Eligibility for EIS/VCT reliefs depends on the company continuing to meet qualifying conditions and may be withdrawn. EIS and VCT investments are high risk, illiquid, and you may lose some or all of your invested capital. These investments are not suitable for all investors and are not comparable to cash savings products. You should seek independent financial and tax advice before investing.