The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are among the most generous tax relief programmes in the UK — but they are also among the least understood. This guide explains how they work, the full range of tax benefits on offer, and the risks every investor needs to understand before committing.
This is not financial advice. EIS and SEIS are high-risk investments. You should seek professional financial and tax advice before investing.
EIS vs SEIS: The Key Difference
Both schemes incentivise investment in small UK trading companies, but they target different stages of growth:
| Feature | SEIS | EIS |
|---|---|---|
| Stage of company | Very early (seed) | Early-stage growth |
| Max annual investment | £200,000 | £1,000,000 |
| Income tax relief | 50% | 30% |
| Max income tax saving | £100,000/year | £300,000/year |
| CGT exemption on gains | Yes (after 3 years) | Yes (after 3 years) |
| CGT deferral | No | Yes |
| Loss relief | Yes | Yes |
| Company max employees | 25 | 250 |
| Company max assets | £350,000 | £15 million |
| Minimum hold period | 3 years | 3 years |
Income Tax Relief on EIS/SEIS
The headline benefit is income tax relief on the amount invested:
SEIS — 50% Relief
Invest up to £200,000 per tax year in qualifying SEIS shares. Your income tax bill is reduced by 50% of the amount invested, limited to your actual tax liability.
Example:
- Investment: £40,000 into a SEIS company
- Income tax relief: 50% × £40,000 = £20,000 reduction in your tax bill
- Effective cost of investment: £40,000 − £20,000 = £20,000
EIS — 30% Relief
Invest up to £1,000,000 per tax year (£2,000,000 if the company is “knowledge-intensive”). Your income tax bill is reduced by 30%.
Example:
- Investment: £100,000 into an EIS company
- Income tax relief: 30% × £100,000 = £30,000 reduction in your tax bill
- Effective cost: £70,000
Key Rules on Income Tax Relief
- You must have a UK income tax liability at least equal to the relief claimed
- Relief is applied in the year the shares are issued (or carried back to the previous year for EIS)
- If you dispose of the shares in less than 3 years, relief is clawed back proportionally
- HMRC issues tax relief certificates (EIS3/SEIS3) — you need these to claim on your tax return
CGT Exemption — Tax-Free Growth
If you hold EIS or SEIS shares for at least 3 years, any capital gains on the disposal are completely exempt from Capital Gains Tax.
| Scenario | Without EIS | With EIS |
|---|---|---|
| Invest £50,000, shares worth £200,000 after 5 years | £38,000 CGT at 24% | £0 CGT |
| Net gain after tax | £112,000 | £150,000 |
The 3-year hold period runs from the date the shares were issued (not when you subscribed). If you sell before 3 years, the CGT exemption is lost and the investment may also trigger income tax relief clawback.
CGT Deferral Relief (EIS Only)
EIS offers an additional benefit that SEIS does not: CGT deferral. If you have made a capital gain on another asset (shares, property, etc.) and reinvest the proceeds into EIS shares, you can defer paying CGT on the original gain until the EIS shares are disposed of.
How it works:
- Sell an asset, realising a gain of £80,000
- Within 3 years (or 12 months before the disposal), invest the proceeds into qualifying EIS shares
- CGT on the £80,000 gain is deferred until the EIS shares are sold
There is no limit on the amount of CGT that can be deferred — unlike the £1 million investment limit for income tax relief. However, on disposal of the EIS shares, the deferred CGT becomes payable at the rate applicable then.
Loss Relief
If your EIS or SEIS investment loses value and you sell at a loss, you can claim loss relief against either:
- Income (offsetting against your income tax bill in the year of the loss, OR the previous year), or
- Capital gains
The effective downside is significantly reduced when you account for the initial income tax relief plus loss relief:
Example (EIS investment that fails):
- Invest £100,000 into EIS shares
- Income tax relief at purchase: −£30,000 (net cost: £70,000)
- Company fails; shares worth £0
- Effective loss: £70,000
- Loss relief (40% taxpayer): 40% × £70,000 = −£28,000
- Net effective loss: £42,000 (on a £100,000 original investment)
Your effective downside is substantially reduced — but you still lose more than half your money. These are genuinely high-risk investments.
Investor Eligibility
You can invest in EIS/SEIS if you:
- Are UK resident and paying UK income tax
- Are not a connected person — you cannot be an employee, director (except in very limited SEIS cases), or hold more than 30% of the company’s shares
- Are not investing money that originated from a tax-avoidance arrangement
SEIS: Can a director invest? Under SEIS (only), a director of the company can invest and claim SEIS relief — provided they did not hold the shares before the company commenced trading and are not connected in other ways. This is one distinction that makes SEIS useful for founders investing in their own seed-stage company.
Company Requirements
Not every start-up qualifies. The company must:
| Requirement | SEIS | EIS |
|---|---|---|
| Location | UK resident, incorporated in UK | UK or EEA |
| Trading | Genuine trade (not investments or property) | Genuine trade |
| Age | Less than 3 years of trading | Less than 7 years (10 for knowledge-intensive) |
| Max employees | 25 | 250 |
| Max gross assets | £350,000 | £15 million |
| Listed on exchange | Must NOT be | Must NOT be (AIM qualifies as unlisted) |
Companies in certain sectors are excluded: banking, insurance, property development, legal services, farming, and certain others.
How to Claim EIS/SEIS Relief
- Receive your EIS3 or SEIS3 certificate from the company after HMRC approves the share issue
- Complete your Self-Assessment tax return — enter the relief in the ‘Reliefs’ section
- For carry-back: Tick the election to treat the investment as made in the previous tax year
- Retain all documentation — HMRC may request evidence in an enquiry
If you invest through an EIS or SEIS fund (rather than directly), the fund manager issues the certificates. Many platforms (e.g., Seedrs, Crowdcube, Syndicate Room) handle this process.
EIS/SEIS Funds
Rather than investing directly in individual start-ups, you can invest in:
- EIS funds: Portfolio of 15–25+ qualifying EIS companies — diversifies start-up risk
- EIS investment managers: Professional managers who select companies on your behalf
- SEIS funds: Typically smaller, focused on very early-stage businesses
Fund investments typically charge annual management fees (1–2%). The tax reliefs work identically to direct investments.
VCT vs EIS vs SEIS
Venture Capital Trusts (VCTs) are listed companies that invest in early-stage businesses. They offer different benefits:
| Feature | VCT | EIS | SEIS |
|---|---|---|---|
| Income tax relief | 30% | 30% | 50% |
| Annual limit | £200,000 | £1,000,000 | £200,000 |
| Tax-free dividends | Yes | No | No |
| CGT on disposal | Exempt | Exempt (3yr hold) | Exempt (3yr hold) |
| CGT deferral | No | Yes | No |
| Loss relief | No | Yes | Yes |
| Listed | Yes | No | No |
| Liquidity | Limited | Very limited | Very limited |
VCTs are more liquid (listed) and offer tax-free dividends, making them more suited to income-seeking investors. EIS/SEIS offer greater tax relief and loss relief, but are completely illiquid until sale.