EIS and SEIS Investment Schemes
How EIS and SEIS offer generous income tax relief, CGT exemptions and IHT benefits for investors backing early-stage UK businesses.
What are EIS and SEIS?
The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are UK government programmes designed to encourage investment in early-stage and growth-focused companies by offering generous tax reliefs to investors. SEIS is targeted at the earliest-stage startups; EIS is for slightly more established growth companies. Both schemes require the company to obtain HMRC advance assurance.
SEIS — Seed Enterprise Investment Scheme
SEIS offers the most generous reliefs for the highest-risk investments (very early-stage companies): • Income Tax relief: 50% of the amount invested (up to £200,000 invested per year = £100,000 tax relief) • CGT exemption: gains on disposal after 3 years are completely free of CGT • Loss relief: if the company fails, losses (net of income tax relief) can be set against income • CGT reinvestment relief: 50% of capital gains reinvested via SEIS are exempt from CGT The company must have been trading for less than 3 years and have gross assets under £350,000 at the time of investment.
EIS — Enterprise Investment Scheme
EIS offers significant reliefs for investments in qualifying growth companies: • Income Tax relief: 30% of the amount invested (up to £1,000,000 invested per year = £300,000 tax relief; up to £2,000,000 for knowledge-intensive companies) • CGT exemption: gains on disposal after 3 years are completely free of CGT • CGT deferral: capital gains from other assets can be deferred by reinvesting in EIS shares • Loss relief: losses net of income tax relief can be set against income • Inheritance Tax: EIS shares qualify for Business Property Relief after 2 years — outside your estate for IHT The company must have gross assets under £15m before investment and fewer than 250 employees.
Rules for Investors
To claim EIS or SEIS relief: • You must be a qualifying investor — you cannot be connected to the company (e.g. employee, director who joined before the share issue, or holder of more than 30% of the company) • You must receive an EIS3 or SEIS3 certificate from the company before claiming • Claim via Self Assessment — income tax relief reduces your tax liability for the year of investment • Shares must be held for at least 3 years to retain the CGT exemption • Income tax relief can be carried back to the previous tax year (useful for year-end planning)
VCT — Venture Capital Trusts
Venture Capital Trusts are a related scheme worth knowing: • VCTs are listed investment companies that pool investor money to invest in qualifying small companies • Income Tax relief: 30% on up to £200,000 invested per year • Dividends from VCTs are tax-free • Gains on disposal are CGT-exempt • Shares must be held for at least 5 years VCTs are more liquid than direct EIS/SEIS investments as they are listed on the London Stock Exchange.
Key Risks and Considerations
These are high-risk investments and investors should be aware: • EIS and SEIS investments are in small, early-stage companies — a high proportion fail • Shares are illiquid and may be difficult to sell • Tax reliefs can be clawed back if you sell shares within the minimum holding period, or if the company loses its qualifying status • The tax reliefs are designed to compensate for the risk, not eliminate it • Always seek independent financial advice before investing That said, the combined reliefs mean EIS and SEIS investments can be attractive for high-rate taxpayers as part of a diversified portfolio strategy.
SEIS vs EIS
| Item | SEIS | EIS |
|---|---|---|
| Max investment/yr | £200,000 | £1,000,000 |
| Income Tax relief | 50% | 30% |
| CGT on gains | Exempt (3yr) | Exempt (3yr) |
| CGT deferral | 50% reinvest | Full deferral |
| IHT (BPR) | Yes (2yr) | Yes (2yr) |
Investing via EIS or SEIS?
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