How to invest in EIS UK

What the Enterprise Investment Scheme is

The Enterprise Investment Scheme encourages individual investors in the United Kingdom to subscribe for new ordinary shares in smaller higher risk companies. In return, investors may receive a package of tax reliefs that can include income tax relief at thirty percent, capital gains tax exemption on disposal after at least three years, the option to defer gains from other assets, and loss relief if an investment fails. These incentives balance risk and make it more attractive to back innovation and growth.

The main ways to invest

There are three common routes. All end with you receiving an EIS3 certificate for each share issue so that you can claim relief.

Direct investment in a single company

You subscribe for new ordinary shares in a chosen company. You sign a subscription agreement and transfer funds, receive a share certificate, and later receive EIS3 when the company completes its compliance process. Direct investing gives you control, but concentrates risk in one company and involves more paperwork.

Managed EIS portfolio or EIS fund

You invest through a manager that spreads your subscription across several companies over a period, typically six to eighteen months. The manager performs due diligence, negotiates terms, and handles documents. You receive one EIS3 per company as each investment completes. This route helps with diversification and administration.

Crowd platforms that support EIS

Some platforms list raises that intend to qualify for the scheme and provide a guided subscription process, often using a nominee structure. Fees and custody terms vary, so read the summary before you commit.

Investor limits and knowledge intensive companies

When learning how to invest in EIS UK, keep the annual investor limits in view because they shape portfolio size and carry back decisions.

• The standard annual investor limit is one million pounds of qualifying subscriptions in a tax year.
• The limit increases to two million pounds where at least one million pounds of your total for that year is invested in knowledge intensive companies.
• The income tax relief rate is thirty percent, so the maximum income tax reduction is three hundred thousand pounds at the standard limit, or six hundred thousand pounds at the higher limit.
• Relief cannot exceed your actual income tax liability for the year you claim against. Carry back can help you match relief to your income tax bill across two years.

Knowledge intensive companies are those that meet specific tests for research and development intensity and suitably qualified staff. Managers and companies usually label this clearly because it affects the investor limit.

What counts as qualifying shares

To qualify, you must subscribe for new ordinary shares that are fully at risk. The shares must not be redeemable and must not carry preferential rights to assets on a winding up. Arrangements that protect capital or fix returns are generally not permitted and may deny relief. The company must meet scheme conditions at the time of issue and must apply the money for a qualifying business purpose within the permitted period, typically within two years.

Company level eligibility checks

A sound investment is both a good business and a compliant one. Before subscribing, confirm the following points.

• Qualifying trade. Excluded activities include financial activities, dealing in land or commodities, property development, operating hotels or nursing homes under certain models, and energy generation.
• Size and age. The company must be unlisted, below the gross assets threshold at issue, within the employee limits, and within the permitted age since first commercial sale unless knowledge intensive extensions apply.
• Use of funds. Money will be used for growth and development of the business, not for acquiring shares or simply preserving capital.
• Independence. The company is not under the control of another company and only controls subsidiaries that meet scheme rules.
• Risk to capital. The plan shows that the company has objectives to grow and develop and that investors’ capital is genuinely at risk.

Many companies obtain advance assurance to indicate that a proposed raise appears to qualify. It is not a guarantee, but it is a helpful signal and shows the company has engaged with compliance.

Personal connection rules for investors

Eligibility also depends on your position. Relief can be restricted if you are connected to the company.

• Employment. In general, you cannot be an employee of the company or of a qualifying subsidiary from two years before the share issue until three years after. Some unpaid director roles are allowed and some paid roles are permitted in specific circumstances.
• Ownership. You must not hold more than twenty percent of the ordinary share capital, voting rights, or assets on a winding up.
• Loans and arrangements. Avoid loans linked to the subscription or arrangements that guarantee returns.

If you are invited to join the board or to provide paid services, ask for advice before accepting so that you do not inadvertently create a disqualifying connection.

Costs and documents you will see

Costs

• Direct investment may involve legal or platform costs.
• Managed portfolios and funds usually charge an initial fee, an annual management fee, and sometimes a performance fee. Some fees are charged at manager level and some are borne by investee companies. Ask for a clear schedule so you know the amount actually deployed into shares.

Documents

• An information memorandum or concise deck that summarises the business and the risks
• A subscription agreement stating the amount and the share terms
• Articles of association and a shareholders agreement for direct rounds
• Nominee or custody terms for platforms and portfolio services
• Contract notes and share certificates
• EIS3 certificates once each company completes the compliance process

Keep all documents in one place. You will need them when you claim and when you later sell or make follow on investments.

Step by step process from decision to claim

1. Choose your route. Direct, managed portfolio, or platform.
2. Check eligibility. Confirm trade, use of funds, size, and independence. Confirm your personal connection position.
3. Subscribe. Sign the subscription agreement and transfer funds as instructed.
4. Receive evidence of issue. Contract note and share certificate or nominee statement.
5. Company carries on a qualifying activity for at least four months.
6. Company submits its compliance statement.
7. Company receives authority approval and issues EIS3 to investors.
8. You claim relief through Self Assessment or by requesting a Pay As You Earn code adjustment.

The time between subscription and receipt of EIS3 varies. If you file a return before the certificate arrives, you can file on time and amend later, provided you remain within the overall claim deadline.

We also recommend investors speak to a qualified tax adviser to check if EIS investing is right for you.

How to plan by tax year

Relief is based on the date the shares are issued, not the date you sent the money. This matters for both the claim year and the three year holding period for capital gains tax exemption.

• Carry back. You can carry back some or all of a subscription to the previous tax year, within the investor limits and provided you had enough liability in that earlier year.
• Holding period. The three year period for capital gains tax exemption starts on the date of issue.
• Claim deadline. The latest date to claim income tax relief and deferral is five years after the first thirty one January following the end of the tax year of issue.

If you invest through a managed portfolio, ask for the expected deployment profile so you can predict when share issues will occur and when EIS3s will arrive.

How to claim once EIS3 arrives

There are two routes and you can use both where relevant.

Self Assessment

Most investors claim through Self Assessment. In the reliefs area of the return, enter the details from EIS3 including company name, date of issue, unique investment reference, and the amount you are claiming for the current year. Make a carry back election there if you want the relief to reduce last year’s liability.

PAYE code adjustment

If you are employed, you can ask for a code change once you have EIS3 so that relief reduces deductions from your pay in the current year. This does not replace the need to file a return where required, but it improves cash flow.

Capital gains tax benefits in detail

Disposal relief after three years

If you hold EIS shares for at least three years and conditions continue to be met, gains on sale can be free of capital gains tax. This exemption has no monetary cap and can be a major contributor to total return.

Deferral of gains from other assets

You can defer a gain from any asset by subscribing for EIS shares where the shares are issued in the period beginning twelve months before and ending three years after the date the original gain arose. The gain becomes chargeable later when a trigger event occurs, such as disposal of the EIS shares or the company ceasing to qualify. Deferral changes timing, not the size of the gain.

Using loss relief when things go wrong

If an investment fails and you sell the shares at a loss, you can offset the net loss against income of the year of disposal or the previous year, or against capital gains. The net loss is calculated after deducting the income tax relief you retained on those shares. The choice between setting a loss against income or against gains depends on your rates and on what produces the better outcome in cash terms.

Managing risk with structure

EIS sits at the high risk end of the spectrum. Use structure to tilt the odds.

• Diversify by company. A spread across eight to twelve companies reduces exposure to single company outcomes.
• Diversify by vintage. Allocate across more than one tax year to smooth timing.
• Blend stages. Mix seed, early revenue, and growth to reduce correlation.
• Balance sectors. Avoid over exposure to a single niche.
• Size positions. Larger positions go to companies with stronger traction and governance.

Where SEIS and VCTs sit

The Seed Enterprise Investment Scheme supports very early stage companies and offers its own reliefs at a different rate. Many investors combine SEIS at seed with EIS for follow on rounds in the same or related companies.

Venture Capital Trusts are listed investment companies that invest in smaller businesses and pay tax efficient dividends to individual investors. VCTs can sit alongside EIS to provide a different return profile and more liquidity.

Worked examples

Example one. Building an allocation over two tax years
Amelia wants to invest one hundred and twenty thousand pounds. She commits sixty thousand pounds in March and sixty thousand pounds in June through a managed portfolio. The manager expects to deploy each tranche over twelve months across several companies. Amelia receives EIS3s across two tax years and uses carry back to balance relief against her income tax bill in each year.

Example two. Direct round with eligibility checks
Khalid invests thirty thousand pounds in a direct round. Before subscribing he confirms that the company’s trade is qualifying, that shares are ordinary and fully at risk, that use of funds is for development and hiring, and that the company is independent. The company shares a short summary and confirms that excluded activities, including energy generation, do not apply. Khalid invests, receives a share certificate, later receives EIS3, and claims relief on his return.

Example three. Using deferral
Sophie realises a gain of one hundred and fifty thousand pounds on a share sale in June. She subscribes for EIS shares that are issued in December the same year and again the following September. Both issues fall within three years after the gain date. Sophie claims to defer one hundred and fifty thousand pounds of gains once EIS3s arrive and also claims income tax relief on each subscription.

Example four. Loss relief
Noah invests twenty thousand pounds, receives six thousand pounds of income tax relief, and later sells the shares for one pound. The net loss is fourteen thousand pounds. Noah sets the loss against income taxed at forty five percent and saves a further six thousand three hundred pounds.

Example five. Knowledge intensive uplift
Priya invests one million five hundred thousand pounds with at least one million pounds into knowledge intensive companies. The annual limit rises to two million pounds so the thirty percent relief on her subscription is £450,000, subject to her income tax bill and any carry back election.

Keeping your reliefs safe

Relief can be withdrawn if conditions are broken within three years of the date of issue.

• Do not sell early unless you accept that income tax relief is usually withdrawn and disposal relief will not apply.
• Monitor compliance. Read investor updates and ask for confirmation that qualifying conditions continue.
• Avoid prohibited connections. Do not take a paid role without checking its impact.
• Track your dates. Keep a simple spreadsheet with issue dates, claim deadlines, and three year anniversaries.
• Record deferred gains. If you defer gains, keep a note of the amount and the trigger events that bring it back into charge.

One page checklist

• Confirm that you are subscribing for new ordinary shares fully at risk
• Confirm qualifying trade and that excluded activities do not apply
• Confirm size and age tests and independence
• Check use of funds and the plan to deploy within two years
• Confirm that you are not an employee and will not exceed twenty percent ownership
• Understand fees and the expected deployment profile
• Plan the tax year and any carry back
• Keep contract notes, share certificates, and EIS3 certificates together

Frequently asked questions

What is the simplest way to begin
A managed portfolio is often the easiest start because it provides diversification and professional selection. You can add direct investments later in sectors you understand.

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 smooths timing.

Can I invest through a company or a trust and still get relief
EIS relief is designed for individuals who subscribe for shares in their own name. Company or trust structures do not usually receive these personal reliefs.

When will I receive EIS3
Only after the company has carried on its qualifying activity for at least four months and submitted its compliance statement. Timings vary and are not guaranteed.

What happens if the company is sold within three years
If you dispose of your shares within three years, income tax relief is usually withdrawn and disposal relief does not apply. A deferred gain can also become chargeable. Ask for a clear note on scheme consequences before you vote on any transaction.

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.