What is EIS (Enterprise Investment Scheme)?
EIS is a UK government scheme that offers investors 30% income tax relief, CGT deferral, CGT exemption after 3 years, and loss relief when they invest in qualifying companies. Companies can raise up to £5 million per year under EIS.
Current Rate (2025/26)
30% income tax relief for investors, £5m annual limit per company (£12m lifetime), £1m per investor per tax year (£2m for knowledge-intensive companies)
Example
An investor puts £500,000 into your EIS-qualifying company. They get £150,000 off their income tax bill (30% relief). If they reinvest a capital gain, CGT on that gain is deferred. If they hold the EIS shares for 3+ years and sell at a profit, the gain on EIS shares is completely CGT-free.
Key Dates
Shares must be held for at least 3 years. EIS extended to 6 April 2035 (Autumn Statement 2023). Company must be under 7 years old (10 for knowledge-intensive).
How EIS (Enterprise Investment Scheme) Works in Practice
The Enterprise Investment Scheme has been a cornerstone of UK startup and growth company funding since its introduction in 1994. It offers investors significant tax incentives to invest in qualifying companies that are further along than typical SEIS companies but still at a relatively early stage of development. The scheme supports companies with up to 250 employees and £15 million in gross assets, making it suitable for a wide range of growing businesses from post-seed startups to established SMEs seeking growth capital.
The core investor benefits are substantial. Income tax relief of 30% can be claimed on up to £1 million of EIS investment per tax year, rising to £2 million if the excess above £1 million is invested in knowledge-intensive companies. Capital gains from the sale of other assets can be deferred by reinvesting into EIS shares, with no limit on the gain that can be deferred. If EIS shares are held for at least 3 years and then sold at a profit, the gain on those shares is completely exempt from CGT. If the investment fails, loss relief is available at the investor's marginal income tax rate on the net cost after income tax relief.
From the company's perspective, EIS allows raising up to £5 million per year from all venture capital schemes combined (EIS, SEIS, VCTs, social investment), with a lifetime maximum of £12 million. Knowledge-intensive companies benefit from enhanced limits of £10 million per year and £20 million lifetime. The company must have made its first commercial sale less than 7 years ago (10 years for knowledge-intensive companies), have fewer than 250 employees, gross assets under £15 million, carry on a qualifying trade, and have a permanent establishment in the UK.
A critical difference from SEIS is that directors and employees of the company cannot claim EIS tax relief. This means EIS is designed purely for outside investors. The only narrow exception is for unpaid directors who receive no benefits from the company, but this is strictly interpreted by HMRC. The connected person rules also exclude anyone holding more than 30% of the shares, voting rights, or rights to assets, including shares held by associates such as spouses, parents, and children.
Step by Step
The EIS process follows a similar pattern to SEIS. The company first applies for advance assurance from HMRC, providing details of the trade, financials, share structure, and proposed investment round. After receiving advance assurance, the company issues new ordinary shares to investors and collects their investment funds. The company then submits an EIS1 compliance statement to HMRC, which reviews it and issues EIS3 compliance certificates to each investor.
Investors use their EIS3 certificate to claim 30% income tax relief on their Self Assessment return. They can claim for the tax year in which the shares were issued, or carry the relief back to the previous tax year. If they are deferring a capital gain, they complete a separate claim on the Self Assessment return showing the gain being deferred and the EIS investment it is being deferred into. The 3-year qualifying period runs from the date the shares were issued, and all conditions must be maintained throughout this period. If conditions are breached, the income tax relief is clawed back and any deferred gains become immediately chargeable.
Practical Tips
- Always apply for advance assurance before your fundraising round, even though it is not legally required, because virtually all sophisticated investors will insist on it
- If your company qualifies as a knowledge-intensive company, apply for KIC status as it significantly increases both the company fundraising limits and individual investor limits
- Structure your investment agreements carefully to avoid any provisions that could be treated as giving investors preferential rights, which would disqualify the shares from EIS
- Warn investors who are offered board seats that becoming a director will disqualify them from EIS relief unless they serve without any remuneration or benefits
- Keep detailed compliance records for the full 3-year qualifying period, as HMRC can open enquiries at any point and will want to see evidence that all conditions were maintained
Common Mistakes to Avoid
- Assuming that directors or employees can claim EIS relief - they cannot, regardless of their shareholding percentage
- Not accounting for associated companies when checking the £5 million annual limit, as investment raised by subsidiaries counts towards the parent's total
- Issuing shares with preferential rights or guaranteed returns, which disqualifies the shares from EIS relief even if the company otherwise qualifies
- Allowing an investor to become a director within the 3-year qualifying period, which triggers a clawback of their EIS relief unless they are genuinely unpaid with no benefits
- Failing to check the company's age from first commercial sale rather than incorporation date, leading to rejection at the compliance stage
Frequently Asked Questions
What is the EIS income tax relief rate?
30% of the amount invested, up to £1 million per tax year (giving a maximum relief of £300,000). If you invest more than £1 million, the excess up to £2 million can also qualify if invested in knowledge-intensive companies.
How does EIS CGT deferral work?
If you have a capital gain from selling any asset, you can defer that gain by reinvesting the proceeds into EIS-qualifying shares. The gain is not charged to CGT until you dispose of the EIS shares. If you hold the EIS shares until death, the deferred gain is written off entirely. There is no limit on the amount of gain that can be deferred.
Can I combine SEIS and EIS investment in the same company?
Yes, but SEIS must come first. The company raises up to £250,000 under SEIS, spends at least 70% on qualifying business activity, and then raises further funds under EIS. A single company can benefit from both schemes sequentially. Individual investors can hold both SEIS and EIS shares in the same company.
Has EIS been extended or is it ending?
EIS was originally due to expire on 6 April 2025 under a sunset clause. The government confirmed in the Autumn Statement 2023 that EIS has been extended to 6 April 2035, providing 10 more years of certainty for companies and investors.
What is the difference between EIS and VCTs?
EIS involves direct investment into a specific company, giving you 30% income tax relief and control over which company you back. VCTs (Venture Capital Trusts) are listed funds that invest in a portfolio of qualifying companies, also giving 30% income tax relief but with less control over individual investments. VCT dividends are tax-free, but EIS offers CGT deferral which VCTs do not.
Source: HMRC VCM10000 - EIS Manual
Related Terms
SEIS is a UK government scheme that offers investors 50% income tax relief, CGT exemption, and loss relief when they invest in qualifying early-stage companies. Companies can raise up to £250,000 under SEIS.
A knowledge-intensive company (KIC) is a company that meets specific criteria around research and development spending and skilled workforce, qualifying it for enhanced EIS limits: up to £10 million per year (vs £5m standard), £20 million lifetime (vs £12m), and £2 million per investor per year (vs £1m).
Advance assurance is a confirmation from HMRC that a company should meet the conditions for SEIS or EIS, based on the information provided. It gives investors confidence that their investment will qualify for tax relief before they commit their money.
A qualifying trade is a trade that is eligible for SEIS and EIS tax relief. The legislation works on an exclusion basis: most trades qualify unless they are on the list of specifically excluded activities such as property development, financial services, and legal or accountancy services.
An angel investor is a high-net-worth individual who invests their own money into early-stage companies, typically in exchange for equity. UK angel investors frequently invest through SEIS and EIS to benefit from significant income tax relief, CGT exemption, and loss relief.
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