What the new EIS rules mean for Knowledge Intensive Companies

Understanding the Enterprise Investment Scheme (EIS)

The Enterprise Investment Scheme is an initiative created by the UK government back in 1994. It was designed to offer investors tax reliefs to invest in high-risk early-stage companies. Those eligible are mainly tax-based, with private investors able to claim income tax relief, capital gains tax exemptions and loss relief, among other tax benefits, when investing in qualifying companies.

Primarily, the EIS targets small to medium-sized businesses, but Knowledge Intensive Companies can also receive investment under the scheme. That’s due to KICs having a higher growth potential as a result of their innovation and ability to attract and retain senior talent.

EIS vs SEIS and Venture Capital Trusts

The EIS is not the only investment scheme that will change, as the new rules also affect similar government-run initiatives.

• Seed Enterprise Investment Scheme: While the EIS focuses on established early-stage businesses, the Seed Enterprise Investment Scheme (SEIS) targets very young start-ups. Eligible investors can receive reliefs, including up to 50% income tax relief on investments up to £200,000 per year.
• Venture Capital Trusts: VCT investments, on the other hand, are listed investment trusts that also benefit from income tax relief and CGT exemptions but require longer holding periods and offer dividends.

Key Changes in the New EIS Rules (April 2026)

During the 2025 budget, the UK government announced updated rules for the EIS and SEIS schemes, as well as venture capital trusts. These updates, which roll out on 6 April 2026, all impact how much investment companies can receive, the level of tax benefits investors can receive, and more.

Specifically for Knowledge Intensive Companies through the EIS scheme:

More companies can potentially qualify as a KIC through the EIS scheme

Qualifying conditions have changed, meaning larger companies will be able to apply for EIS investment. Previously, to be an EIS-qualifying company, the business would have to pass what is called a gross assets test that showed it had no more than £15 million in gross assets.

That limit will double to £30 million before the issue of EIS shares and to £35 million from £16 million immediately after the share issue.

Increased Annual and Lifetime Investment Limits

Another key change that will directly impact KICs is the doubling of the investment a company can receive from the SEIS, EIS and venture capital schemes, both annually and across its lifetime.

• Annual Maximum Investment Limit Increased: Once the new rules have been rolled out, a KIC can receive investment worth up to £20 million each year, which is double the £10 million previously. Regular early-stage businesses can also receive double, with the limit now £10 million, up from £5 million.
• Increased Lifetime Limit: A company’s lifetime investment limit has also doubled. Businesses qualifying as a KIC will be able to receive lifetime investments of up to £40 million instead of the previous £20 million. Non-KICs will also have their lifetime limit increased to £24 million from £12 million.

These updates aim to make EIS more flexible for both investors and early-stage businesses. Qualifying companies will be able to receive more investment.

Tax Benefits for Investors Under the New Rules

Under the changes, not much has changed for investors in terms of the tax benefits they receive, at least for the EIS and SEIS schemes. VCT income tax relief is being reduced from 30% to 20%, but aside from that, private investors have pretty much the same options and the same rules to abide by when they’re considering a new investment.

Having said that, the tax reliefs available under the EIS remain a central feature of the scheme for those willing to invest in high-risk early-stage companies. The following are the tax benefits available through the EIS scheme.

EIS tax reliefs are always subject to change and have been multiple times over the years. It is necessary to refer to the government website for the most up-to-date information on these schemes.

Income Tax Relief

Through EIS, investors can claim 30% income tax relief on their investments of up to £1 million per year. That doubles to £2 million if at least £1 million of those investments has been invested into Knowledge Intensive Companies.

Other key points:

• To benefit from the relief, investors must have a sufficient income tax liability in the current or previous tax year (via the carry back facility) in which they invest.
• To retain these tax benefits, EIS shares must be held for at least three years. Selling EIS shares within that timeframe will result in some or all of the relief being withdrawn. The same applies if a company ceases to qualify for the EIS within that time period.
• The tax relief is not affected when shares are transferred to a spouse or civil partner during the holding period.

Capital Gains Tax Relief

CGT relief is another benefit for investors through the EIS. Any gains made from the sale of shares are tax-free, as long as they have been held for a minimum of three years.

They do not have to be sold at that point either; if an investment is going well, the investor can choose to hold onto the shares to potentially increase the capital gains relief they’ll receive once they do offload.

KIC investment example: Using the same £300,000 KIC investment example, should it prove successful over at least three years, you’ll not pay tax on your shares when sold. So, if you sell the EIS shares for £600,000, the £300,000 gain comes tax-free.

CGT Deferral Relief

The tax benefits available through an EIS investment can also carry over into areas of an investor’s finances. CGT deferral relief allows investors to defer any gains on the sale of other assets, so long as those gains are reinvested into EIS-qualifying companies. This capital gains deferral applies to gains made up to three years before and one year after the EIS investment.

KIC investment example: An investor has made a £300,000 gain on the sale of a home, but would like to avoid paying the 18% or 24% (depending on the tax bracket) CGT rates. They decide to invest that gain into a Knowledge Intensive Company through EIS. Using this method, you can defer those gains for as long as you hold the EIS shares.

Loss Relief

The loss relief benefit is a reminder of why the UK government creates schemes like the Enterprise Investment Scheme in the first place.

As a result of that risk and the potential for EIS investors to lose out, they’re able to make a claim for loss relief. It acts as a safety net that softens the fall somewhat, although investors will still suffer overall losses.

Inheritance Tax Relief

The final EIS tax relief is potentially available for investors who are planning long-term wealth transfers to their beneficiaries. EIS shares will qualify for business relief, but only if they’ve been held for at least two years at the time of the investor’s death.

The Implications for Knowledge Intensive Companies

The updated rules will have implications for knowledge intensive companies seeking investment. They have given these businesses a potentially higher chance of securing the funding needed to grow and hopefully become success stories.

• Access to double the capital: The new, higher investment limits, both annually and lifetime, make it easier for KICs to secure funding.
• Easier to attract high-net-worth investors: Those higher investment limits also increase the attractiveness for investors. Their own investments stand a better chance of success as long as the KICs manage to secure the remainder of what they need.
• Retaining senior talent: By structuring shares to meet EIS requirements, KICs can incentivise key employees without compromising tax eligibility.

Risks and Considerations

Despite the increased benefits to investors and companies, EIS investments remain high-risk for the following reasons:

• For investors: Illiquid shares, the possibility of total loss, reliance on a company’s continued EIS compliance, long holding periods and a high failure rate for business start-ups.
• For companies: Failing to meet and to continue to meet qualifying conditions can risk a company’s EIS eligibility and investor confidence.
• Tax implications: Missteps in claiming relief, carry back, or CGT exemptions can lead to clawbacks.

Therefore, it is more important than ever that careful due diligence is carried out alongside detailed financial planning. Expert advice is also imperative, as an EIS investment is never something to rush into. More fail than succeed, so the investment has to be the right one.

New EIS Rules FAQ

What changes to the EIS rules come into effect in April 2026?

In short, the gross asset requirement for companies to qualify for the EIS has doubled, meaning a wider scope of companies can qualify. On top of that, the investment EIS-qualifying businesses can receive annually and throughout their lifetime has also doubled. 

How do the new EIS rules benefit Knowledge Intensive Companies?

Knowledge Intensive Companies will be able to raise double the capital of £20 million per year and £40 million throughout their lifetime. In addition, higher gross asset thresholds mean more companies can qualify as KICs.

Have investor tax reliefs under the EIS changed?
No major changes have been made to EIS or SEIS investor tax reliefs. Investors can still claim the same tax benefits as before.

How do the new EIS rules compare with SEIS and Venture Capital Trusts?

While EIS and SEIS investment limits have increased, Venture Capital Trust income tax relief has been reduced from 30% to 20%. 

What risks should investors and companies consider under the EIS?

EIS investments remain high risk. Increased funding limits do not reduce the risk of business failure.

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. You should seek independent financial and tax advice before investing.