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FundingUpdated 2026-10-19

Can directors invest in their own company via EIS?

Quick Answer

Generally no. Directors, employees, and anyone who holds more than 30% of the company's shares (or voting rights or rights to assets) are 'connected persons' and cannot claim EIS tax relief. However, SEIS has a partial exception for directors of companies less than 3 years old.

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Detailed Explanation

Director and connected person rules for EIS

EIS tax relief is designed to encourage outside investment into qualifying companies. To prevent founders from using it to get tax relief on their own business, the legislation disqualifies 'connected persons'.

Who is a connected person?

You are connected to the company and cannot claim EIS relief if, at any time from the date the shares are issued until 3 years after, you are:

  • A **director or employee** of the company (or a subsidiary)
  • Entitled to more than **30% of the ordinary share capital**
  • Entitled to more than **30% of the voting rights**
  • Entitled to more than **30% of the assets** on a winding up
  • An **associate** of any of the above (spouse, civil partner, parent, grandparent, child, grandchild, or business partner)

The 30% shareholding test in detail

The 30% test looks at all classes of shares and considers rights to distributions, voting power, and assets on winding up. It includes shares held by associates. For example, if you hold 20% and your spouse holds 15%, you are connected because your combined holding exceeds 30%.

EIS: directors are excluded

Under EIS, any person who is or becomes a director or employee of the company at any point from incorporation to 3 years after the share issue cannot claim EIS relief on shares in that company. There is no exception.

SEIS: partial exception for directors

SEIS is more generous. Directors of the company can claim SEIS tax relief provided they do not hold more than 30% of the shares. This recognises that early-stage companies often need founders to invest alongside external investors. However, employees who are not directors remain excluded.

Business angels who become directors

An outside investor who initially qualifies for EIS relief will lose that relief if they subsequently become a director or employee of the company within 3 years of the share issue. The only exception is for unpaid directors who receive no benefits from the company, though this is a narrow and strictly interpreted exemption.

Practical implications

  • If you are a founder-director, you cannot use EIS for your own investment
  • You can still raise money from other investors who will qualify for EIS
  • Under SEIS, you may be able to claim relief on your own investment if you hold less than 30%
  • Angel investors should think carefully before accepting a board seat within the 3-year qualifying period

Source: HMRC VCM10530 - Connected Persons

Real-World Examples

Director Investing in a Later Funding Round

Sarah is a director of a company that previously raised EIS funding from external investors. Two years later, the company needs more capital. Even though external investors are also participating, Sarah's investment would *not* qualify for EIS relief due to her director status.

Employee Becoming a Director

Mark invested in his company via EIS when he was solely an employee. He's now been appointed as a director. The EIS relief on his *original* investment is not affected, provided he meets the other criteria (held shares for 3 years). However, if he invests again *after* becoming a director, the new investment won't qualify for EIS relief.

SEIS Investment as a Director Under 3 Years

John is the director of a startup that is 18 months old. The company is raising a small SEIS round. John *can* invest in his company via SEIS and claim tax relief, provided the company meets *all* other SEIS requirements and he doesn't receive any 'remuneration' (salary) during that period, besides reimbursement of expenses. The amount eligible is capped at £200,000 a tax year.

Common Mistakes to Avoid

  • Assuming that any investment made by a director automatically qualifies for SEIS simply because the company is young.
  • Forgetting that becoming a director *after* investing via EIS can still cause problems if the shares are disposed of within the three-year qualifying period.
  • Thinking that family members who are also employees but not directors can claim EIS relief, as family members are often considered 'connected persons'.
  • Ignoring the 'remuneration' rule under SEIS which prevents directors from drawing a salary while claiming SEIS relief (other than allowable expenses).

What happens if a director becomes 'unconnected' within the 3-year period, for example, by resigning as director?

Even if a director resigns within the three-year period, their initial investment still does not qualify for EIS. The 'connected person' test applies from the date the shares are issued to three years after, meaning that being connected at *any* point in that period disqualifies the investment.

Are directors' spouses or civil partners also considered 'connected persons'?

Yes, a director's spouse or civil partner is also considered a connected person. Therefore, investments made by them would also be ineligible for EIS relief unless they are separated.

If a director has a separate company that invests in their own company, can the director claim EIS through the separate company?

No. The 'connected person' rules also extend to companies connected to the director. If the director controls the investing company, the EIS relief is not available.

What is considered 'remuneration' under SEIS that would disqualify a director?

Remuneration includes any payment for services rendered, such as a salary, bonus, or other form of compensation. Reimbursement for legitimate business expenses is generally allowed but any payment above that will disqualify the director's SEIS claim.

Practical Tips

  • Document all director and employee changes carefully, noting dates of appointment and resignation to maintain accurate EIS/SEIS records.
  • If a director is considering investing in their own company, seek advance assurance from HMRC *before* making the investment to confirm eligibility, especially with SEIS.
  • Consider alternative funding options that don't have the restrictions of EIS/SEIS, such as loans, asset finance, or grants.
  • Ensure a clear audit trail of all business expenses claimed by directors under SEIS to demonstrate compliance with the 'no remuneration' rule.

Related Questions

What is the 30% shareholding test for SEIS/EIS?

The 30% shareholding test determines whether an investor is a 'connected person'. If you (together with associates) hold more than 30% of a company's shares, voting rights, or rights to assets on winding up, you cannot claim EIS tax relief. Under SEIS, you also lose relief if you exceed 30%.

What is the difference between SEIS and EIS?

SEIS offers 50% income tax relief on investments up to £200,000 in very early-stage companies (under 3 years, under £250k raised), while EIS offers 30% relief on up to £1 million in slightly larger companies (under 7 years, up to £10 million raised per year).

How do I apply for SEIS/EIS advance assurance?

You apply to HMRC's Small Company Enterprise Centre using the online advance assurance form, providing details of your company, trade, and proposed share issue. HMRC typically responds within 4-6 weeks.

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