Discover the benefits of Enterprise Investment Scheme tax relief and decide if the EIS is right for you.
One minute overview
EIS relief operates by providing access to a range of potential tax reliefs, known to as EIS tax relief,to qualifying individuals who subscribe for new ordinary shares in qualifying United Kingdom companies (referred to as EIS qualifying companies). The headline is EIS income tax relief at 30% of your subscription, within the annual investor limits. Hold the shares for at least three years and you may be eligible to capital gains tax exemption on disposal. You can also defer a gain from another asset and may claim loss relief if the investment fails. You make your claim using the EIS3 certificate once the company has completed its compliance steps.
What is the Enterprise Investment Scheme
The Enterprise Investment Scheme is a policy introduced by the UK government to channel private capital into smaller high risk companies that need funding to grow. It sits within the UK venture capital landscape and uses tax reliefs to balance the high risk nature of early stage investing. You invest cash, receive shares, and then claim relief once the paperwork catches up.
The Enterprise Investment Scheme and the Seed Enterprise Investment Scheme (SEIS) are two key venture capital schemes supported by the UK government. EIS is a type of venture capital scheme.
The five parts of EIS relief
1. Income tax relief at thirty percent
You can potentially reduce your income tax bill by thirty percent of the amount subscribed for qualifying shares.
Relief cannot exceed your actual income tax liability for the tax year you claim against, and this is limited by your taxable income. If you are an additional rate taxpayer, the amount of EIS income tax relief you can claim may be higher, but is still limited by your taxable income.
You must claim the relief in the same tax year as the investment unless you use the carry back option. You can elect to carry back some or all of the subscription to the previous tax year if that helps.
You must claim tax relief through the appropriate process.
2. Capital gains tax disposal relief
If you meet the three year holding period and all conditions continue, your gain on sale can be free of capital gains tax. This means you do not have to pay CGT on the gain from EIS shares.
This is why many investors treat EIS as a long term venture capital allocation rather than a trading position.
If you sell your EIS shares at a loss, you may be able to claim a capital loss for tax purposes.
3. Capital gains deferral relief
You can defer a gain from any asset by subscribing for an EIS qualifying investment, specifically EIS shares, where the shares are issued from twelve months before to three years after the date your original gain arose.
The deferred gain is taxed later, normally when you dispose of the EIS shares or the company ceases to qualify.
Deferral changes timing, not size, so it can reduce pressure when you would otherwise pay capital gains tax immediately.
You must claim tax relief for the deferral through your self-assessment tax return.
4. Loss relief
If you sell the shares at a loss, this is known as EIS loss relief. You can claim EIS loss relief by offsetting the net loss against income of the disposal year or the previous tax year, or against gains. Net means after deducting the thirty percent you already received.
Claiming EIS loss relief requires keeping documentation such as your EIS3 certificate, and you can claim through your Self Assessment tax return or by asking HMRC to adjust your PAYE tax code. You must claim tax relief for the loss through the appropriate process.
You can claim EIS loss relief by offsetting the loss against income or capital gains, and any unused capital losses can be carried forward to future tax years if not fully used.
This is a key cushion in venture capital portfolios.
5. Business Relief for Inheritance Tax
Business Relief is a form of IHT relief that allows qualifying unlisted trading shares to receive one hundred percent relief after a two year holding period. Only qualifying assets, such as shares in trading companies, are eligible for this relief. To qualify for Business Relief, the company must be engaged in a qualifying business activity for the required period. This is separate from the main EIS reliefs but often considered in long term planning.
Investor limits and knowledge intensive companies
The standard annual limit is the maximum investment allowed per tax year, set at one million pounds of qualifying subscriptions. The maximum amount of Capital Gains Tax relief you can claim is determined by this maximum investment. The limit rises to two million pounds where at least one million pounds of your total is invested in knowledge intensive companies. Only investments in EIS eligible companies count toward these limits. At thirty percent, the maximum annual reduction is three hundred thousand pounds at the standard limit or six hundred thousand pounds at the higher limit. You can also carry back EIS tax relief to the previous year if needed.
What counts as qualifying shares
You must subscribe for an EIS qualifying investment in new ordinary shares that are fully at risk.
Shares cannot be redeemable and should not carry preferential rights to assets on a winding up.
To qualify, the company must have gross assets of no more than £7 million before the investment.
Arrangements that protect capital or potentially guarantee returns are not compatible with the EIS rules.
These rules are subject to change so be up to date with latest criteria.
Company level checks
To be eligible, a company must be an EIS qualifying company. It must carry on a qualifying business activity—certain activities like financial trading, dealing in land or commodities, property development, and energy generation are excluded. The company must be unlisted, have gross assets below the EIS limit (currently £7 million), meet size and age thresholds, be independent, and use the funds for a qualifying business purpose within the permitted time.
Companies can seek advance assurance from HMRC to confirm that they are likely to qualify for EIS. An advance assurance letter from HMRC provides investors with confidence that the company meets the requirements, although it does not guarantee tax relief.
This is why professional EIS managers embed compliance checks into their venture capital processes.
Personal connection rules for investors
Relief can be restricted if you are connected with the company. As a rule, you cannot be an employee from two years before the issue of shares until three years after. You must not hold more than twenty percent of ordinary share capital, voting rights, or assets on a winding up. Limited unpaid director roles may be acceptable, and unpaid directors may still be eligible for certain tax reliefs, but take advice before accepting any role.
From subscription to claimed income tax relief
- Subscribe for new ordinary shares and keep the contract note.
- The company carries on qualifying activity for at least four months.
- The company submits its compliance statement.
- The company receives approval and sends investors the EIS3, which includes a Unique Investment Reference issued by HMRC.
- You use this reference to claim tax relief and claim EIS via Self Assessment, or request a PAYE code adjustment.
The time between subscription and EIS3 varies by company.
If you must file before EIS3 arrives, file on time and amend later, staying within the overall time limit.
You must claim EIS relief through Self Assessment or PAYE.
Claim deadlines and the tax year anchor
The latest date to claim income tax relief and deferral is five years after the 31st January following the end of the tax year in which the shares were issued. Generally, claims must be made in the same tax year as the share issue, unless you are carrying relief back to the previous year or forward to future tax years if you cannot use all the relief in the current year.
Note the anchor: it is the tax year of issue, not the subscription date.
This is crucial when planning across one tax year and the previous tax year using carry back.
Self Assessment versus PAYE
Self Assessment handles multiple investments, carry back, and capital gains pages in one place.
You enter company name, date of issue, amount, and the unique reference from EIS3.
If employed, you can also request an adjustment to your PAYE tax code so relief shows in payslips during the tax year.
This does not change the total value; it smooths cash flow against your income tax bill.
You must claim tax relief either through your Self Assessment tax return or by requesting a change to your PAYE tax code.
How the three year holding period works
The three year clock starts on the issue date.
Selling within that window usually withdraws income tax relief and blocks capital gains tax exemption on that sale.
A deferred gain can also become chargeable.
Tax-free growth: how EIS investments can grow without capital gains tax
One of the most attractive features of the Enterprise Investment Scheme is the potential for tax-free growth on your EIS investments. When you invest in EIS qualifying companies and hold your EIS shares for at least three years, any profit you make on disposal is exempt from capital gains tax (CGT). This means that, provided all the qualifying conditions are met, you can realise gains from your EIS investment without adding to your CGT bill.
To benefit from this tax-free growth, you must have claimed income tax relief on your EIS investment and the company must remain EIS qualifying throughout the three-year holding period. This exemption applies only to the capital gain made on the EIS shares themselves, not to gains from other assets. For investors, especially those who are additional rate taxpayers or have significant capital gains from other sources, this can be a powerful way to reduce overall tax liability and enhance after-tax returns.
Tax-free growth is just one of several tax reliefs available under the EIS. Alongside income tax relief of up to 30% of your investment, you can also benefit from capital gains tax deferral relief—allowing you to defer CGT on gains from other assets by reinvesting them in EIS shares—and loss relief if your investment does not perform as hoped. These tax reliefs are designed to encourage investment in innovative, high-growth UK businesses, helping to drive economic development and job creation.
To make the most of tax-free growth and other EIS tax reliefs, it’s important to follow the correct process. You’ll need to submit a Self Assessment tax return, complete the relevant sections to claim income tax relief, and keep your EIS3 certificate as evidence. If you wish to carry back your claim to the previous tax year, ensure your investment and claim are structured accordingly. Always check that the company remains EIS qualifying for the full three years to protect your tax-free status.
In summary, EIS investments offer the opportunity for tax-free growth, allowing you to realise capital gains without a CGT charge, provided you meet the qualifying criteria. Combined with other EIS tax reliefs—such as income tax relief, capital gains tax deferral relief, and loss relief—this makes EIS a compelling option for investors seeking both tax efficiency and the chance to support the UK’s most promising early-stage companies. As with all tax planning, consult a professional to ensure you optimise your tax reliefs and comply with the latest rules.
Worked examples
Example A. Straightforward income claim
Amara subscribes £50,000 for new shares.
Her income tax bill for the tax year comfortably exceeds £15,000, so her thirty percent claim fully applies in that year as claimed income tax relief, provided the claim is made in the same tax year as the investment.
Example B. Knowledge intensive uplift
Rishi invests £1,500,000, which is within the maximum investment allowed under EIS rules, with £1,000,000 going to knowledge intensive companies.
His potential thirty percent reduction is £450,000, subject to his income tax bill and any carry back to the previous tax year, and the uplift applies to investments in EIS eligible companies.
Example C. Deferral plus income relief
Maya realises a £120,000 gain on a property sale in June. She subscribes £120,000 or more for EIS shares issued in December and again the following September, both within three years of the gain date. She defers £120,000 and also claims thirty percent income tax relief on each subscription. Without EIS she would have paid capital gains tax in the year of the property sale. Maya must claim tax relief for both the capital gains deferral and the EIS income tax relief.
Example D. Disposal relief
Jon invests £40,000 and sells for £160,000 after three years.
The £120,000 gain is exempt from capital gains tax, so no capital gains tax bill arises on that sale.
If Jon had sold the shares at a loss instead, he could have claimed a capital loss to offset against other gains or income.
Example E. Loss relief
Lena invests £20,000, receives £6,000 of income tax relief, and later sells for £1. Lena is eligible for EIS loss relief on her investment. The net loss is £14,000.
Lena can claim EIS loss relief by offsetting the loss against her income or capital gains, and any unused capital losses can be carried forward to future tax years. Claiming EIS loss relief requires her to keep documentation such as the EIS3 certificate and to follow HMRC procedures, typically through her Self Assessment tax return. Lena must claim tax relief for the loss by reporting it on her tax return, ensuring she meets all eligibility requirements.
She sets the loss against income taxed at 45 percent, saving £6,300 in addition to her original relief.
Fees and the qualifying amount
If you use a managed portfolio, you will likely see an initial fee, an annual fee, and sometimes a performance fee.
Ask for a schedule that shows gross subscription, fees, and net amount deployed into shares for each company.
Your thirty percent is calculated on the amount actually used to buy shares, which simplifies your final claimed income tax relief.
Understanding the investment process, including all associated fees and the net amount deployed, is important for maximizing your relief.
Managing risk like a venture capital investor
Some investors use the following tools to manage risk although you should consult a professional company, by tax year, and by stage. Blend seed, early revenue, and growth; avoid over-concentration in one sector. Use loss relief as a safety net rather than a plan. Treat EIS as part of a broader venture capital scheme allocation, not as a replacement for liquid assets.
Common mistakes to avoid
- Trying to claim tax relief before EIS3 is issued.
- Measuring the deferral window from the wrong date.
- Forgetting the investor limit in the tax year and the previous tax year.
- Assuming every interesting business qualifies.
- Selling inside three years and losing disposal relief.
One page checklist
- Subscribe for new ordinary shares fully at risk
- Confirm qualifying trade, size, age, and independence
- Record the issue date and keep the EIS3
- Claim tax relief using your EIS3 certificate through your self-assessment tax return
- Plan your claim around the tax year and your income tax bill
- Consider carry back to the previous tax year if needed
- Track the three year holding period and any deferred gains
- Diversify across several companies and more than one issue date
Frequently asked questions
When can I first claim
After the company has carried on a qualifying activity for at least four months, submitted its compliance statement, and issued your EIS3. Then you can claim tax relief by filing through Self Assessment or requesting a PAYE code change.
Does EIS work if I invest through my own company
EIS relief is designed for individuals investing in their own names. Company or trust structures do not normally receive these personal reliefs.
What happens if the company is sold within three years
Disposal inside the protected period usually withdraws income tax relief and blocks capital gains tax exemption. A deferred gain can also return to charge.
Can I combine SEIS and EIS
Yes. The Seed Enterprise Investment Scheme supports very early stage rounds. Many investors use SEIS at seed and the Enterprise Investment Scheme for later rounds.
Why is planning by tax year so important
The claim deadline, carry back option, and the three year holding period all run from the tax year of issue. You can carry back EIS tax relief to the previous year if you have not used your EIS allowance and meet the conditions. Aligning subscriptions with your income tax bill helps you use the full value of the tax relief.
Capital is at risk. This guide is not to be treated as advice and tax treatment varies according to individual circumstances, may be subject to qualifying conditions, and is subject to change. EIS shares must be held for the required minimum holding period to retain tax reliefs and the rules regarding reliefs and qualifying conditions can change. We strongly recommend that you obtain your own professional advice for your individual circumstances.
What are Social Investment Tax Relief and Reinvestment Relief, and how do they differ from EIS?
Social Investment Tax Relief (SITR) is a scheme that offers tax relief to investors who support social enterprises, with specific eligibility and investment limits, and applies to investments made on or before 5 April 2023. Reinvestment relief is available under SEIS, allowing investors to exempt a portion of capital gains from CGT by reinvesting gains into SEIS-qualifying shares. EIS, by contrast, focuses on providing tax relief for investments in qualifying early-stage companies, with different rules and benefits compared to SITR and SEIS reinvestment relief.
Capital is at risk. This guide is not to be treated as advice and tax treatment varies according to individual circumstances, may be subject to qualifying conditions, and is subject to change. EIS shares must be held for the required minimum holding period to retain tax reliefs and the rules regarding reliefs and qualifying conditions can change. We strongly recommend that you obtain your own professional advice for your individual circumstances.
