EIS and SEIS: income tax relief for investing in small companies

The Enterprise Investment Scheme (EIS) is a government tax scheme that gives income tax relief to individuals who buy new shares in small, early-stage UK trading companies. The relief is worth 30% of the amount subscribed for the shares, and you can invest up to £2 million in a tax year, though any amount above £1 million must go into knowledge-intensive companies¹. The scheme sits alongside the Seed Enterprise Investment Scheme (SEIS), aimed at even younger and smaller companies, and the Venture Capital Trust (VCT) scheme, which spreads money across many small companies through a listed fund².

The tax relief is the government's way of compensating for risk, and the risk is real. These are shares in start-ups and very small businesses, and the rules that govern how such investments are marketed state plainly that investors often lose all of the money they put in, because most start-up businesses fail³. The relief also has strings attached: EIS shares must be held for at least 3 years, and the income tax relief is only kept if that holding period is completed².

The scheme is confirmed to run until April 2035, having been extended from April 2025⁴, and its legal basis is Part 5 of the Income Tax Act 2007⁵.

What the EIS offers: 30% income tax relief

The core benefit of the Enterprise Investment Scheme is income tax relief worth 30% of the amount an individual subscribes for new shares in early-stage qualifying trading companies¹. HMRC's guidance gives the same figure, 30% of the investment, as the percentage on which income tax relief can be claimed², and the notes to the Self Assessment additional information form confirm the 30% rate for the scheme⁸.

The relief works by reducing your income tax liability for the year in which you invest. Someone who subscribes £10,000 for qualifying EIS shares and completes the holding period gets £3,000 off their income tax bill, calculated as 30% of £10,000 using the two figures stated here. Because it works against income tax liability, the relief is worth most to people who have a substantial income tax bill to offset: the relief cannot return more tax than you actually owe. How your income tax bill is built up, and the bands and rates that determine it, is covered on the income tax page.

The scale of the scheme gives a sense of who uses it. In 2022 to 2023, 40,485 investors claimed EIS income tax relief, slightly down from 45,155 in 2021 to 2022. Most of them are not large investors: around 93% of investors invested less than £100,000, with the remaining 7% investing amounts up to £2 million¹.

The scheme's legal foundation is Part 5 of the Income Tax Act 2007, which is described in the legislation as being "about relief under the enterprise investment scheme"⁵. The government has committed to keeping the scheme running: a policy statement confirms the extension of the EIS and VCT scheme from April 2025 to April 2035, continuing the availability of income and capital gains tax reliefs for investors in qualifying companies⁴.

How much you can invest: £1 million, or £2 million in knowledge-intensive companies

The maximum amount you can subscribe in a tax year on which EIS relief can be claimed is £2 million, but any amount over £1 million must be for shares issued by one or more knowledge-intensive companies¹. Knowledge-intensive companies are a defined category of businesses with high research, innovation or skilled-employee intensity, and the higher limit exists to direct larger investments towards them.

The limits work at two levels: what you as an investor can claim relief on, and what the company receiving the money can raise under the scheme. From 6 April 2026, changes increase the company's lifetime investment limit to £24 million, up from £12 million, and for knowledge-intensive companies to £40 million, up from £20 million⁹. These are limits on how much a single company can receive through EIS and the related schemes over its lifetime, not limits on your investment.

SEIS has its own, smaller limits. For SEIS shares issued on or after 6 April 2023, the investor's annual relief limit is £200,000, doubled from the previous £100,000, and a company can raise up to £250,000 through SEIS, up from £150,000⁶. The Finance Act 2023 made these increases, and also extended the period in which a company's trade counts as new from two years to three years¹⁰.

For comparison, a VCT allows a maximum investment eligible for income tax relief of £200,000 per year¹¹.

Who can claim EIS relief, and when you are 'connected' to the company

EIS relief is for individuals. It works against the income tax liability of the person who subscribes for the shares, and the claim is made through Self Assessment, where "subscriptions for shares under the Enterprise Investment Scheme" appear on the official list of tax reliefs you can claim on your return¹². That means you need to be within Self Assessment, or register for it, to claim; who must file a return and the deadlines are covered on the Self Assessment page.

The rules are tighter for people close to the company. The venture capital schemes are designed to bring outside money into small companies, not to give tax relief to people who already control or work in them, and the legislation restricts relief for people who are 'connected' to the company. The official guidance illustrates how these schemes treat directors: for Social Investment Tax Relief, a related scheme, you cannot claim tax relief if you are a paid director of the social enterprise, while unpaid directors can claim². The exact position for EIS depends on your precise relationship with the company, including any employment, directorship or financial interest, so it is worth checking your position with HMRC before subscribing if you have any existing involvement.

For VCTs, the equivalent eligibility rule is stated directly: the tax reliefs only apply to people aged 18 years or over who are UK income tax payers¹¹.

EIS relief is only kept if you hold the shares for at least 3 years

The income tax relief is conditional. HMRC's guidance states that you must have held the shares for the minimum amount of time for the scheme, "which will be at least 3 years"². If you sell the shares, or otherwise cease to hold them, before the minimum qualifying period is complete, the conditions for relief are not satisfied and the relief can be withdrawn.

The holding period is not just a technicality; it shapes what kind of investment this is. Money put into EIS shares should be money you can do without for at least three years, because selling early does not just lose a future benefit, it can claw back relief already claimed. The three-year theme runs through the SEIS rules too: for shares issued on or after 6 April 2023, a company's trade must have started within a three-year pre-investment period to qualify, meaning the company itself must be genuinely young when you invest⁶.

VCTs carry a longer requirement. New VCT shares bought directly from the manager are only eligible for the full set of tax reliefs if they are held for five years¹¹, and the minimum time an investor must hold a VCT to qualify for income tax relief is given as five years¹¹.

Deferring a capital gain by reinvesting in EIS shares

The venture capital schemes include capital gains tax reliefs as well as income tax relief. The government's extension of the EIS and VCT scheme is described as "continuing the availability of income and capital gains tax reliefs for investors in qualifying companies and VCTs"⁴, so the capital gains treatment is an integral part of what the schemes offer rather than a separate add-on.

The clearest example in the legislation is SEIS re-investment relief, which sits in Schedule 5BB to the Taxation of Chargeable Gains Act 1992. For shares issued on or after 6 April 2023, the re-investment relief limit is £200,000, doubled from the previous £100,000¹⁰. This relief works on the capital gains side of the ledger: it is one of the ways the schemes interact with a chargeable gain, alongside the income tax relief on the subscription itself.

How capital gains are taxed in general, including the annual exempt amount and the rates that apply, is covered on the Capital Gains Tax page. If you are considering these schemes with a specific gain in mind, the interaction between the relief you want and the gain you have depends on the timing and the type of shares, and the figures to have to hand are the amount subscribed, the date the shares were issued and the amount of the gain.

If an EIS company fails: losses and what protection exists

The tax relief does not protect the money you invest. The rules that govern how investments in non-readily realisable securities, which includes shares in small private companies, are marketed require firms to spell out the downside, and the required risk summary states it bluntly:

FCA Conduct of Business rules for risk summaries³

That is the base case to plan around: the 30% income tax relief softens the loss on paper, but the value of a VCT and any dividends from it can fall to zero, and losses could eclipse the tax savings. The relief itself only stands if the five year holding period and the other conditions were met.

It is worth being clear about what compensation exists and what it does not cover. The Financial Services Compensation Scheme (FSCS) was set up by parliament to pay back money to eligible people when their financial firm fails¹³. You can claim compensation from FSCS if a financial firm has failed and all of the following apply: the firm was authorised, it carried out a regulated activity for you, you lost money, and it owes you a legal liability¹⁴. That is a scheme for the failure of an authorised financial firm that owes you money, such as a bank or investment firm, not insurance against a small company you invested in simply performing badly or going out of business. A trading company failing is a commercial loss, not a compensation event.

If you invested through a firm that later fails, whether FSCS can help depends on those conditions being met, and claims are assessed case by case¹⁴. Free, impartial help with working out where you stand is available from the FSCS itself when making a claim¹³.

How to claim EIS income tax relief

EIS relief is claimed through Self Assessment. The official list of tax reliefs you can claim on your Self Assessment tax return includes "subscriptions for shares under the Enterprise Investment Scheme" alongside reliefs such as Community Investment Tax Relief, tax relief on private pension contributions and marriage allowance¹².

The claim is made on the additional information pages of the return. The notes to those pages for 2025-26 show the Enterprise Investment Scheme entry with its 30% rate, so the relief is entered as part of the return rather than claimed separately⁸.

The practical steps are:

1. Subscribe for qualifying shares and keep the paperwork the company or its agent issues for the subscription.
2. Make sure you are registered for Self Assessment for the tax year in which you invested, registering if you do not normally file a return.
3. Enter the EIS subscription on the additional information pages of your return, using the scheme's entry⁸.
4. File by the Self Assessment deadline and let the relief reduce your income tax bill for the year.

If you do not normally complete a tax return, the registering for Self Assessment page covers when and how to register, and the Self Assessment page covers who must file and the deadlines.

EIS, SEIS or a venture capital trust: how each one works

The three schemes aim at the same broad goal, getting money into small UK companies, but they do it in different ways and with different reliefs.

EIS gives 30% income tax relief on subscriptions for new shares in individual qualifying companies, up to £2 million a year¹. You choose the company or companies, and you hold the shares directly, which concentrates both the risk and any return.

SEIS is for the youngest companies: for shares issued on or after 6 April 2023, the trade must have started within a three-year pre-investment period⁶, the company can raise up to £250,000⁶, and the investor's relief limit is £200,000 a year⁶.

VCTs work differently. A VCT is a listed investment trust that invests in small UK companies which are not usually quoted on the stock market, including new shares of privately owned companies and new shares of companies traded on the Alternative Investment Market (AIM)¹¹. Instead of picking companies yourself, the trust spreads the money across a portfolio. VCTs are one of the four tax-based venture capital schemes, according to HMRC's statistics¹⁵. The tax package is different too: dividends and capital gains within a VCT are tax-free, but the upfront income tax relief is lower, at 20% from 6 April 2026, reduced from 30%⁷. The Budget 2025 tax legislation overview confirms the decrease from 30% to 20% takes effect from 6 April 2026¹⁶, and the government estimates the reduction will affect around 24,000 individuals, who will receive less income tax relief on their VCT investments⁹. The wider investing section covers VCTs in more depth.

There is also a fourth, less-known option in the same family: Community Investment Tax Relief gives relief of up to 25% of the value of an investment in a community development finance institution, spread over 5 years starting with the year in which the investment is made¹⁷.

Inheritance tax and EIS shares

The reliefs described on this page are income tax and capital gains tax reliefs: the 30% off your income tax bill, the holding periods that keep it in place, and the capital gains treatment that runs alongside them¹. Inheritance tax is a separate tax with its own thresholds, rates and rules, covered on the inheritance tax page.

Shares in a small private company are assets like any other when it comes to an estate, and whether any relief or exemption applies to them on death depends on the inheritance tax rules and the specifics of the holding, not on the EIS relief itself. The official material on the venture capital schemes set out here covers income tax and capital gains, and does not extend the EIS reliefs into inheritance tax. If the inheritance tax position of a holding matters to you, that is a question to take up with a professional adviser or HMRC, alongside the general rules on gifts and inheritance tax.

The risks: you can lose all the money you invest

The tax relief is a payment for taking risk, and the risk should be treated as the main event. The FCA's required risk summary for investments in non-readily realisable securities states that "investors in these shares or bonds often lose 100% of the money they invested, as most start-up businesses fail"³. EIS shares are shares in exactly that kind of company, and they are non-readily realisable: there is no ready market to sell them into, so money invested can be locked up well beyond the three-year minimum holding period.

VCTs spread the risk across many companies, but they remain high risk. The independent guidance on VCTs states that they are higher risk than most other investment trusts because of the companies they invest in, and that they are generally more suitable for experienced investors¹¹. Costs add to the challenge: VCTs generally have higher running costs than other investment trusts, and most charge performance fees as well¹¹. Valuing what you hold is also harder, as VCTs often only value their portfolio every three or six months¹¹.

There are two further things that can go wrong:

• Relief can be lost. If the VCT itself does not comply with a range of conditions, both the VCT and the investors lose all the tax benefits¹¹. For EIS, the conditions on holding and on the company's qualifying status work the same way: relief stands only while the rules are met.
• Exit can be difficult. It can be difficult to sell VCT shares to other investors on the stock market as you would with other shares, although some VCTs offer a buy-back facility¹¹. Shares bought on the secondary market get no tax relief on the initial investment, though tax-free income and capital gains are still available¹¹.

Given the loss risk, the concentration in single companies under EIS, and the length of time money can be tied up, the amount invested is the figure to keep in view: the majority of EIS investors, around 93%, invest less than £100,000¹. Free, impartial guidance on investments generally is available through the investing section, and anyone unsure whether a scheme is genuine can check the warnings about investment fraud before parting with money.