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FundingUpdated 2026-02-12

Do SEIS/EIS shares qualify for inheritance tax relief?

Quick Answer

Yes, SEIS and EIS shares can qualify for 100% Business Property Relief (BPR) from inheritance tax after being held for at least 2 years, provided the company is still an unquoted trading company at the time of death.

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Detailed Explanation

Inheritance tax relief on SEIS/EIS shares

SEIS and EIS shares can provide a valuable inheritance tax (IHT) planning benefit through Business Property Relief, in addition to the income tax and CGT reliefs available during the investor's lifetime.

Business Property Relief (BPR)

Shares in unquoted trading companies qualify for 100% BPR, meaning they can pass to beneficiaries completely free of inheritance tax. This applies to both SEIS and EIS shares provided:

  • The shares have been held for at least **2 years** at the date of death
  • The company is still an **unquoted trading company** at that time
  • The company is not mainly an **investment company** (more than 50% of activities must be trading)

How the 2-year test works

The 2-year holding period runs from the date the shares were acquired, not from the date of the SEIS/EIS investment. Replacement shares generally inherit the holding period of the original shares they replaced.

The interaction with other reliefs

SEIS/EIS shares held at death benefit from a unique combination of reliefs:

- Income tax relief

The 50% (SEIS) or 30% (EIS) relief claimed when the shares were purchased is retained - **No CGT on death

This means an investor could receive income tax relief when buying the shares, pay no IHT when the shares pass on death, and the beneficiaries receive them with an uplifted base cost for CGT purposes.

Limitations and risks

  • If the company has been sold, wound up, or listed on a stock exchange before death, BPR will not apply
  • If the company has become mainly an investment company (holding property or cash rather than actively trading), BPR may be denied
  • HMRC can challenge BPR claims on SEIS/EIS shares if they believe the investment was made primarily for IHT avoidance rather than for commercial reasons
  • AIM-listed shares also qualify for BPR, so the unquoted status of SEIS/EIS shares is not unique in this regard

Practical considerations

  • SEIS/EIS shares should not be the primary IHT planning strategy, but they offer a useful additional benefit
  • Review the trading status of portfolio companies regularly to ensure BPR eligibility is maintained
  • Consider the interaction with the nil-rate band (currently £325,000) and residence nil-rate band (£175,000)
  • Take professional advice on estate planning that involves SEIS/EIS investments

Source: HMRC IHTM25000 - Business Property Relief

Real-World Examples

Passing on a Family Business with EIS Shares

A director holds EIS shares in their family's unquoted manufacturing business, which they plan to pass on to their children. Because the shares have been held for over two years and the company continues to trade, the shares will qualify for 100% BPR, meaning no inheritance tax will be due on that portion of the estate.

Inheriting EIS Shares After a Takeover

An investor inherits EIS shares after the original investor's death. However, the EIS company was acquired by a larger PLC six months before the death, so the shares are no longer unquoted. The EIS shares would not qualify for BPR, and inheritance tax may be due.

Shares held in a trust

A director puts EIS shares into a discretionary trust for the benefit of their grandchildren. If the shares are held within the trust for at least two years prior to a distribution to the grandchildren on the director's death and all other BPR conditions are met, the distribution may qualify for 100% BPR, shielding the value from inheritance tax.

Common Mistakes to Avoid

  • Assuming BPR is automatic without checking the company's trading status at the time of death; HMRC will scrutinize this.
  • Forgetting the two-year holding period requirement; BPR isn't available if the shares haven't been held for at least 2 years at the time of death.
  • Believing that any unquoted company qualifies; the company must be a trading company and not primarily engaged in investment activities.
  • Thinking that EIS shares automatically qualify for IHT relief when transferred into a SIPP; pension rules apply separately, and BPR might not be applicable.

What happens if the EIS company is sold shortly before death?

If the EIS company is sold and becomes quoted before the death of the shareholder, the shares will generally no longer qualify for BPR. Inheritance tax may then be payable on their value as part of the estate.

Can BPR be claimed on SEIS/EIS shares held jointly?

Yes, BPR can be claimed on jointly held SEIS/EIS shares, provided the relevant conditions are met. Each joint owner is treated as owning a proportionate share of the asset for IHT purposes.

If I gift EIS shares to a family member, will they qualify for BPR if I die within 7 years?

Potentially, yes. If you gift the shares and survive for more than two years from the date of purchase and up to seven years from the date of the gift, and they still meet the conditions for BPR at the time of your death, BPR may still be available. This is a potentially exempt transfer (PET) and could become chargeable if you die within 7 years, but BPR could mitigate that.

Does the valuation of the EIS/SEIS shares matter for BPR purposes?

Yes, the valuation of the shares is important because BPR is applied to that value. A higher valuation will mean a greater amount is shielded from inheritance tax, while a lower valuation will result in less relief. It is crucial to have accurate valuations, especially when dealing with unquoted companies.

Practical Tips

  • Keep detailed records of your SEIS/EIS share purchases, including dates, amounts, and company details, for easy access when dealing with estate planning.
  • Review the trading status of your SEIS/EIS companies annually to ensure they continue to qualify for BPR, especially as you approach retirement or estate planning.
  • Discuss your SEIS/EIS holdings with a qualified financial advisor and solicitor to integrate them into your overall inheritance tax planning strategy.
  • Consider making lifetime gifts of SEIS/EIS shares to utilise annual gift allowances and potentially reduce the overall IHT burden, bearing in mind the seven-year rule and BPR qualification at the time of the gift and death.

Related Questions

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).

What happens if SEIS/EIS conditions are broken?

If conditions are broken within the 3-year qualifying period, investors lose their tax relief and must repay it to HMRC. The company may also face consequences including being unable to issue further SEIS/EIS-qualifying shares. The clawback affects all investors in that share issue.

Has EIS been extended beyond 2025?

Yes. EIS was originally due to expire on 6 April 2025, but the UK government confirmed in the Autumn Statement 2023 that both EIS and VCT reliefs have been extended to 6 April 2035, providing a further 10 years of certainty.

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