How to invest in EIS

Why investors consider EIS

Many investors use the Enterprise Investment Scheme to back growing UK companies while improving their after tax returns.

The package includes tax incentives that can reduce the income tax bill for a given tax year. It can also provide capital gains tax exemption on disposal after a minimum holding period.

These incentives do not remove commercial risk. They balance it so that early stage capital can flow.

The main routes to make EIS investments

You can invest directly in one company. You can invest through an EIS fund or portfolio service. You can also use a crowd platform that supports the enterprise investment scheme.

Each route ends with the same goal. You receive an EIS3 certificate for each qualifying share issue and then you claim tax relief.

Direct investment in a single company

You negotiate terms with the company and sign a subscription agreement.

Funds move to the company. You receive a share certificate.

Later the company completes the compliance process and sends you an EIS3.

Direct investment gives control and focus. It increases company specific risk and admin.

Using an EIS fund or portfolio service

An EIS fund spreads capital across several companies over time.

A manager sources deals, performs due diligence, and handles paperwork.

You receive a separate EIS3 for each drawdown into each company.

A fund can improve diversification for people who prefer a guided approach.

Crowd platforms that support EIS

Some platforms list raises that are designed to qualify for the enterprise investment scheme.

They often use a nominee structure to hold shares for many investors.

Fees and custody terms vary. Read the summary before you commit.

Enterprise Investment Scheme versus Venture Capital Trusts

Venture capital trusts sit on public markets and invest in smaller companies.

A VCT pays tax efficient dividends to individual investors and uses its own rule set.

A VCT can complement EIS investments by providing a different pattern of returns and higher liquidity than private shares.

Where the Seed Enterprise Investment Scheme fits

The seed enterprise investment scheme supports very early stage companies.

Many people blend SEIS with EIS. They invest at seed using SEIS and then follow on at growth using the enterprise investment scheme.

The two schemes work alongside each other to build exposure across stages.

Investor limits and knowledge intensive companies

The standard annual investor limit is one million pounds across qualifying issues.

The limit increases to two million pounds where at least one million pounds goes into knowledge intensive companies.

Income tax relief is thirty percent, so the maximum reduction can be three hundred thousand pounds at the standard limit.

At the higher limit the possible reduction can be six hundred thousand pounds for that tax year, subject to your actual liability.

Plan around your income tax bill so that your claims match available liability.

Qualifying shares and the at risk rule

You must subscribe for new ordinary shares that are fully at risk.

The shares cannot be redeemable. They cannot carry preferential rights to assets on a winding up.

Structures that protect capital or guarantee returns will usually fail the risk to capital condition.

Company level checks before you subscribe

Check the trade. Excluded activities include financial activities, dealing in land, property development, and energy generation.

Check size and age. The company must be unlisted and within employee and gross asset thresholds. Age since first commercial sale matters unless knowledge intensive rules extend it.

Check use of funds. Money should be applied to a qualifying business activity within the permitted time frame.

Ask for a clear plan that shows growth and development, not simple asset preservation.

Personal connection rules for investors

Relief can be restricted if you are connected with the company.

Employment is the main point. You generally cannot be an employee from two years before the share issue until three years after.

There are limited allowances for unpaid director roles. Take advice before accepting a position.

Ownership also matters. You must not own more than twenty percent of ordinary share capital, voting rights, or assets on a winding up.

Documents you will see in a typical subscription

An information memorandum or a concise deck explains the business and the risks.

A subscription agreement records your amount and the share terms.

Articles of association and a shareholders agreement set governance for direct rounds.

Key information documents may appear for some products.

Nominee terms appear when using a platform or a managed portfolio.

Fees and how they affect deployment

Direct rounds may not charge ongoing fees. You may still pay professional fees for advice.

An EIS fund usually charges an initial fee, an annual management fee, and sometimes a performance fee.

Some fees reduce the capital that is deployed into shares. Your income tax relief is calculated on the amount actually subscribed for shares in each company.

Always ask for a breakdown so your claims match the qualifying amounts.

A simple due diligence framework

Look at team strength. Full time founders with domain skill are a clear positive.

Study market and product. Evidence of paid demand is better than surveys.

Check unit economics. You need a path to sensible gross margins and repeatable sales.

Review governance. Confirm cap table, investor rights, and reporting cadence.

Ask about exit routes. Most outcomes will be trade sales or secondary sales.

Managing risk through structure

Diversify by company. A spread across eight to twelve names helps.

Diversify by vintage. Allocate in more than one tax year to smooth timing.

Blend stages. Mix seed, early revenue, and growth to reduce correlation.

Balance sectors. Avoid concentration in one fashionable niche.

Size positions. Place larger amounts into companies with stronger traction.

Planning by tax year and cash flow

The claim year is the tax year in which the shares are issued.

Carry back allows you to treat some or all of a subscription as if it were made in the previous year, within the annual investor limits.

If you are employed you can ask for a PAYE code change once you receive EIS3. This brings relief into take home pay during the year.

Self Assessment is still required where you are a filer.

The process from investment to EIS3

You subscribe and receive a share certificate or nominee statement.

The company carries on its qualifying activity for at least four months.

The company submits the compliance statement.

The tax authority reviews and issues EIS2 to the company.

The company completes and sends an EIS3 certificate to each investor.

You use EIS3 to claim tax relief through Self Assessment or a PAYE code change.

Claiming income tax relief after you invest

Keep the EIS3 safe. It contains the unique investment reference and the amount eligible.

Enter the details on your Self Assessment return in the reliefs section.

Make a carry back election there if it helps balance your income tax bill.

If you do not file a return you can request a PAYE code adjustment using the EIS3 details.

Always retain certificates and contract notes for your records.

Claiming capital gains tax deferral alongside income tax relief

You can defer a gain on any asset by subscribing for EIS shares where the shares are issued from twelve months before to three years after the date the gain arose.

You claim by completing the capital gains pages and noting the amount deferred and the share details.

The deferred gain becomes chargeable later when a trigger event occurs.

Common triggers are disposal of the EIS shares, changes in share nature, the company ceasing to qualify, or a move to non resident status.

Capital gains tax exemption on disposal

If you hold the shares for at least three years and conditions remain satisfied, gains on disposal can be free of capital gains tax.

The three year period runs from the date of issue of the shares, not from the date you paid the money.

Keep a simple spreadsheet of issue dates and the three year anniversaries.

Using loss relief when an investment fails

If you sell at a loss, you can set the net loss against income of the current or previous year, or against capital gains.

The net loss is calculated after deducting any income tax relief already received on those shares.

This feature softens the downside and is a central part of risk management in the enterprise investment scheme.

Keeping reliefs safe during the protected period

Do not sell within the first three years unless you accept that relief will usually be withdrawn.

Monitor company updates to confirm that qualifying conditions continue to be met.

Avoid prohibited loans and arrangements that protect your capital or fix returns.

If a corporate action is proposed, ask for a short note explaining effects on the enterprise investment scheme position before you vote.

Building a balanced EIS allocation

Start with a managed portfolio to learn the process and to diversify.

Add direct rounds in sectors you know. Use modest amounts first.

Reinvest proceeds from exits into new issues to keep your allocation fresh.

Blend enterprise investment scheme holdings with venture capital trusts for a wider mix of exposure and liquidity.

Working examples in brief

Ella commits one hundred and twenty thousand pounds across two tax years through an EIS fund. She receives EIS3s across multiple companies. She uses carry back to match relief to her income tax bill in each year.

Tom invests twenty five thousand pounds directly in a software company. He receives his EIS3 after the company completes compliance. He claims relief on his return and tracks the three year period for capital gains tax exemption.

Jas sells a rental property and has a chargeable gain. Jas invests in two EIS issues within three years of the gain date. Jas claims to defer part of the gain and also claims income tax relief on each subscription.

Daniel is employed and makes a ten thousand pound subscription. When the EIS3 arrives he asks for a PAYE code change. His take home pay increases for the rest of the year.

Nadia invests in a company that later fails. She sells for a nominal amount. She claims loss relief on the net figure against income in the year of disposal.

A quick checklist before you subscribe

Confirm that you are subscribing for new ordinary shares fully at risk.

Confirm that the trade is qualifying and does not fall within excluded activities.

Check size and age thresholds and the plan for use of funds within two years.

Ask whether advance assurance has been obtained and read the summary if available.

Confirm that you will not become an employee and that you will not hold more than twenty percent.

Understand fees and the expected deployment profile if you use an EIS fund.

Plan the claim year and any carry back. Record the issue date for each company.

Planning language to place missing terms

The enterprise investment scheme works best when the plan matches the tax year and the investor’s income tax bill.

A structured approach to EIS investments ensures that the claim tax relief step is smooth once EIS3 arrives.

An EIS fund can be used alongside direct holdings to create a core and satellite structure.

Venture capital trusts can sit next to EIS to deliver complementary income and liquidity.

The seed enterprise investment scheme provides an earlier stage option when you want very young companies in the mix.

Common mistakes to avoid

Do not assume that a favourite sector always qualifies. Check the trade carefully.

Do not measure the deferral window from the wrong date. It is anchored to the date the original gain arose.

Do not forget the five year claim deadline that runs from the thirty one January after the tax year of issue.

Do not over concentrate in one company or one vintage. Diversify with intent.

Do not rely on tax incentives alone. Make a sound commercial decision first.

Speak to a qualified adviser to understand if an EIS investment is right for your circumstances.

One minute summary of how to invest in EIS

Decide whether to invest directly, through an EIS fund, or through a platform.

Check company eligibility and your personal connection position.

Subscribe for new ordinary shares and keep all documents.

Wait for EIS3 and then claim tax relief through Self Assessment or a PAYE code change.

Hold for at least three years to seek capital gains tax exemption and monitor compliance throughout.

Frequently asked questions

What is the simplest way to begin
Start with a managed portfolio so you benefit from diversification and professional selection. Add direct rounds later when you understand the paperwork and the timelines.

How many companies should I hold
Aim for a spread across eight to twelve companies over more than one tax year. This reduces exposure to single company events and to timing surprises.

Can a company pay me for services after I invest
Paid roles can create a connection that restricts relief. If you are invited to a role, ask for guidance first. Unpaid roles may be possible in some cases.

When will I receive the EIS3 certificate
You receive EIS3 only after the company has carried on a qualifying activity for at least four months and has submitted its compliance statement. Timings vary, so plan your claims with some flexibility.

How do venture capital trusts fit with EIS
Venture capital trusts sit alongside the enterprise investment scheme. They can provide tax efficient dividends and greater liquidity. Many investors hold both to create a balanced approach.

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. We strongly recommend that you obtain your own professional advice for your individual circumstances.