How to claim EIS tax relief

What EIS tax relief covers in practice

Understanding the reliefs that can be claimed will help you complete the steps correctly first time. The Enterprise Investment Scheme offers five main advantages for qualifying investments.

1. Income tax relief at 30 percent
   You can reduce your income tax bill by 30 percent of the amount you subscribe for new qualifying shares. The standard annual investor limit is £1,000,000. This increases to £2,000,000 where at least one million pounds of your total subscription is invested in knowledge intensive companies. That means a possible income tax reduction of up to £600,000 in a single tax year if you invest at the higher limit and have enough tax liability.
2. Capital gains tax disposal relief
   If you hold EIS shares for at least three years and all conditions continue to be met, any gain on sale can be free of capital gains tax. This is separate from the initial income tax relief and can add significant value when investments perform well.
3. Capital gains tax deferral relief
   If you have a chargeable gain on any asset, you can defer the tax by subscribing for EIS shares. The shares must be issued in the period beginning twelve months before and ending three years after the date the original gain arose. The deferred gain becomes taxable later when a trigger event happens, for example when you sell the EIS shares or the company ceases to qualify.
4. Loss relief
   If your EIS investment results in a loss, you can set the net loss against income for the current or previous year or against capital gains. The loss is calculated after deducting any income tax relief you have already received on those shares. This softens the downside in early stage investing.
5. Inheritance Tax Business Relief
   Unlisted shares in trading companies can qualify for one hundred percent Business Relief after a two year holding period, subject to the general rules. This can reduce the Inheritance Tax on those shares to zero.

You should also be aware that some trades and activities are excluded. Energy generating activities are excluded for new EIS investments made from the 2016 to 2017 tax year onwards. Always check the trade and structure of the company before you invest.

Disclaimer: The rules can change and have done so in the past. This content is for general information only and is not tax advice. Prospective investors should seek advice from a qualified tax adviser to determine whether EIS is suitable for their circumstances.

The documents you need before you can claim

You cannot claim EIS income tax relief or capital gains tax deferral relief until the investee company has completed its compliance steps and you hold the correct certificate. The document flow is straightforward.

• EIS1 is the compliance statement that the company submits after it has carried on the qualifying activity for at least four months. The qualifying activity can be trading or in some cases research and development that meets the EIS rules.
• Once the tax authority is satisfied, it issues EIS2 to the company.
• The company then provides each investor with an EIS3 certificate. Your EIS3 contains the unique investment reference and the details of the share issue. These details are needed to claim EIS relief.

If you invested more than once, or invested in more than one company, you will receive a separate EIS3 for each investment. Keep all certificates safely, as you may need them for later claims such as deferral, loss relief, or to answer questions.

Time limits you must meet when you claim

When you focus on how to claim EIS tax relief it is essential to get the time limits right. There are two sets of timings that matter.

1. Claim deadlines
   For both income tax relief and capital gains tax deferral relief, the latest date to claim is five years after 31st January following the end of the tax year in which the shares were issued. For example, if the shares were issued between 6th April 2023 and 5th April 2024, the claim must be made by 31st January 2030.
2. Deferral window for the share issue
   For deferral relief, the share issue must fall within the window that starts twelve months before the date the original gain arose and ends three years after that date. This window is measured from the gain date, not from the investment date.

Plan your actions around these fixed points.

How to claim EIS income tax relief through Self Assessment

The Self Assessment route is the most common way to claim EIS income tax relief, especially for investors with multiple subscriptions or carry back decisions. Follow these steps.

1. Confirm you have EIS3
   Wait for the company to finish the EIS1 process and to send you the EIS3 certificate. You cannot complete a valid claim without it.
2. Start your Self Assessment for the relevant tax year
   When you start your return, make sure you select the section that covers other reliefs and deductions. The online form changes slightly each year but the principle remains the same.
3. Enter EIS details
   In the reliefs area look for Enterprise Investment Scheme and enter the information shown on your EIS3. You will typically be asked for the company name, the date the shares were issued, the unique investment reference, and the amount you want to claim for the current year.
4. Decide whether to carry back
   You can carry back some or all of the subscription to the previous tax year. This can be useful if your earlier year income tax liability is higher or if you want to balance your relief across years. The carry back election is made in the same section. Ensure that the total claim across both years does not exceed the annual investor limits and that you had enough tax liability in the earlier year.
5. Submit the return
   File your return by the normal deadline. Your tax calculation will reflect the EIS claim and will either reduce the amount you owe or increase any repayment due.
6. Amend if needed
   If the company has not issued the EIS3 by the time you file, you can file on time and amend the return later when your certificate arrives, provided you still meet the overall claim deadline. Keep notes of the date the shares were issued because that date drives both the holding period and the ultimate claim deadline.

Self Assessment may be the best route if you hold several EIS investments, if you are making a carry back election, or if you also need to claim capital gains tax deferral relief on the same return.

How to claim EIS income tax relief through a PAYE code adjustment

If you are an employee and you want the benefit of the relief to show in your payslips during the current tax year, you can ask for a change to your PAYE tax code once you have received your EIS3. Provide the details from the certificate and request that your code be updated to reflect the expected relief. This approach does not replace the need to keep records or to complete a Self Assessment return if you are required to file one. It can be a useful way to improve cash flow in a simple situation, for example one subscription and a regular salary.

Processing times for PAYE code changes are not guaranteed. If timing is important for a deadline or for a payment on account, the Self Assessment route may be a better alternative.

How to claim capital gains tax deferral relief

The capital gains deferral claim is separate from the income tax claim. You can claim deferral even if you do not claim income tax relief, provided the EIS subscription and the shares meet the rules and you hold an EIS3 for that issue. Here is how to claim.

1. Check the deferral window
   Confirm that the date of share issue falls from twelve months before to three years after the date the original gain arose. Note that this test is applied to the date the gain arose, not the date you received the sale proceeds.
2. Hold the EIS3 certificate
   You need the EIS3 details to make the claim.
3. Complete the capital gains pages
   In your Self Assessment return, complete the capital gains pages and the section for EIS deferral. Enter the amount of the gain you are deferring and the details of the share issue from EIS3. If you are filing on paper, use the capital gains pages and the notes that relate to EIS deferral.
4. Watch the claim deadline
   The claim must be made within the same five year time limit that applies to income tax relief. The deadline runs from the 31st January after the end of the tax year in which the EIS shares were issued.

Once the claim is made, the original gain is deferred. It becomes chargeable later when a trigger event happens. Common trigger events include disposal of the EIS shares, certain transactions that change the nature of the shares, the company ceasing to meet qualifying conditions, or you becoming non resident for tax purposes. Keep a simple schedule of your deferred gains so you can report them if a trigger occurs.

How to claim EIS loss relief

If you sell EIS shares for less than you paid and you have already received income tax relief, you can claim loss relief on the net amount. The calculation and the claim work as follows.

• Calculate the loss
  Start with the total cost of the shares. Deduct the income tax relief you claimed and retained on those shares. Deduct the sale proceeds if any. The result is the loss that can be set against income or against capital gains.
• Choose where to set the loss
  You can set the loss against general income of the year of disposal or the previous year. Alternatively, you can set the loss against capital gains. If you have income taxed at higher rates, setting the loss against income can be more valuable in cash terms than setting it against gains. If your gains would otherwise be taxed at a high rate, using the loss against gains may suit you better. You should discuss this with an adviser if you are unsure.
• Make the claim on your return
  Complete the capital gains pages to show the disposal and use the additional information space to state that you wish to claim to set the qualifying EIS loss against income. Keep evidence of the share subscription, the EIS3, and the disposal.

Note that if you dispose of the shares within the first three years, income tax relief will usually be withdrawn. The withdrawal affects the numbers in the loss calculation, so check your figures carefully.

Keeping your relief safe during the three year period

When you think about how to claim EIS tax relief, remember that claiming is only part of the job. You must also keep the conditions intact for at least three years from the date of issue of the shares. The most common causes of relief being withdrawn are early disposals and the company ceasing to meet qualifying conditions. Here is a practical way to stay on top of this without heavy admin.

• Record key dates
  Keep a simple spreadsheet with the date of share issue, the date the company started or continued its qualifying activity, and the date that the three year period ends.
• Monitor the company
  Read any annual statements or investor updates. If the company changes activity or structure, ask for confirmation that EIS conditions continue to be met.
• Avoid prohibited connections
  EIS has connection rules that restrict investors from becoming employees or taking certain paid roles. If you are invited to join the board, take advice before accepting so that you do not accidentally breach the rules.
• Plan liquidity
  If you may need cash before the three year period ends, consider whether a loan or another source of funds is better, since an early sale can trigger relief withdrawal and tax charges that are more costly than the benefit of selling early.

Worked examples to aid understanding

Example one. Claiming income tax relief and carrying back
Aisha invests £40,000 in qualifying EIS shares issued on 15 February 2026. The company sends the EIS3 certificate in May 2026. Aisha wants to reduce the previous year’s bill as well as the current year’s bill. On the Self Assessment for the 2025 to 2026 tax year, Aisha claims £25,000 in the current year and carries back £15,000 to 2024 to 2025. The income tax reductions are £7,500 for the current year and £4,500 for the prior year. Both claims are within the annual investor limits.

Example two. Claiming capital gains tax deferral
Marco sells a share portfolio on twenty June twenty twenty four and realises a chargeable gain of one hundred and twenty thousand pounds. Marco subscribes for EIS shares that are issued on thirty November twenty twenty five. The issue date is within three years after the gain date, so the shares fall within the deferral window. Once the EIS3 arrives, Marco completes the capital gains pages and claims to defer the full gain. The latest date to submit this claim is five years after the thirty one January following the tax year of issue.

Example three. Claiming loss relief
Nadia invests twenty thousand pounds in EIS shares and receives six thousand pounds of income tax relief. The company later fails and the shares are sold for one pound. The effective capital loss is twenty thousand pounds less six thousand pounds, which is fourteen thousand pounds. Nadia claims to set the fourteen thousand pounds against general income of the year of disposal. If Nadia pays income tax at forty five percent, the tax saving on the loss claim is six thousand three hundred pounds.

Example four. PAYE code adjustment
Daniel invests ten thousand pounds in a qualifying round and receives EIS3 during the year. Daniel is employed and does not normally file a tax return. Daniel supplies the EIS3 details and asks for a PAYE code change. The employer receives a new code and Daniel’s take home pay increases over the rest of the year. Daniel keeps the EIS3 and the payroll records as evidence in case he needs to file a return or answer questions.

Example five. Deferral and later charge
Priya defers a gain of eighty thousand pounds by subscribing for EIS shares. Two years later the company is taken over and the shares are converted into shares that do not meet EIS rules. This is a trigger event. The deferred gain becomes chargeable in the year of the event. Priya includes the eighty thousand pounds in the capital gains pages for that year. If there is also a disposal gain on the shares, Priya reports both figures as required.

Common mistakes and how to avoid them

• Claiming before receiving EIS3
  You need the details from EIS3 to make a valid claim. Without it you risk delay or rejection.
• Measuring the deferral window from the wrong date
  The deferral window is measured from the date the original gain arose, not from the subscription date. Check the date on the contract note for the original disposal.
• Forgetting the five year claim deadline
  The claim deadline runs from the thirty one January after the tax year of issue of the EIS shares. Put a reminder in your calendar.
• Exceeding annual investor limits
  Keep a running total of all EIS subscriptions that you plan to claim in a tax year. If you are investing in knowledge intensive companies, make sure at least one million pounds of the total is in those companies before claiming the increased two million pounds limit.
• Overlooking excluded activities
  Energy generating activities are excluded. If a company operates in that space, you may not be able to claim. Ask for clarity before you subscribe.

Frequently asked questions

When can I first claim EIS income tax relief
You can claim once the investee company has carried on the qualifying activity for at least four months, has submitted its EIS1 compliance statement, and you have received your EIS3 certificate. The EIS3 provides the unique investment reference and the details you must enter on your tax return or give for a PAYE code adjustment.

Can I carry back my claim to the previous tax year
Yes. You can carry back some or all of the subscription to the previous tax year, subject to the overall annual investor limits and provided you had enough income tax liability in that earlier year. The carry back election is made in the EIS section of the Self Assessment return and is a common way to balance relief across years.

How does the deferral window for capital gains work
To claim deferral relief, the EIS shares must be issued in the period that starts twelve months before and ends three years after the date your original gain arose. The window is anchored to the gain date. Once you have EIS3, you claim by completing the capital gains pages of your return and the EIS deferral section.

What happens if I sell my EIS shares within three years
If you sell within the first three years, income tax relief is normally withdrawn and you will not qualify for capital gains tax disposal relief. A deferred gain can also become chargeable. You may still be able to claim loss relief if you sold at a genuine loss, but you must recalculate the figures to reflect any withdrawn relief.

Do I need to file Self Assessment to claim EIS relief
You can claim through Self Assessment or you can ask for a PAYE code adjustment if you are an employee and have EIS3. Many investors choose Self Assessment because it handles multiple investments, carry back elections, and capital gains tax deferral in one place. If you are already required to file a return for other reasons, include your EIS claims there for a complete record.

Capital is at risk. 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. We strongly recommend that you obtain your own professional advice for your individual circumstances.