Unlocking EIS: A Smarter Way to Invest and Save on Tax
Thinking about investing in early-stage UK companies? The Enterprise Investment Scheme (EIS) offers generous tax reliefs to reward that risk.
From income tax relief to capital gains deferral and inheritance tax benefits, EIS can significantly reduce your tax bill while backing innovative businesses.
This guide explains how EIS works, what qualifies, and how to claim your reliefs, so you can choose and invest with confidence and clarity.
What is EIS and How Does it Work?
The Enterprise Investment Scheme is a government initiative designed to encourage investment in early-stage, higher-risk companies. EIS is one of several venture capital schemes that offer investors tax incentives for supporting unquoted companies. It offers significant tax advantages to investors who purchase new shares in qualifying companies.
Companies can raise up to £5 million annually and a maximum of £12 million in their lifetime through EIS. EIS, along with other venture capital schemes such as SEIS and VCT, has specific annual and lifetime limits for fundraising. For investors, it’s a chance to support innovative businesses while enjoying substantial tax perks.
Key EIS Tax Benefits for Investors
The headline benefit is income tax relief of 30% on investments up to £1 million per tax year (known as EIS income tax relief). That means for every £10,000 you invest, you could receive £3,000 back from HMRC. To claim tax relief, investors must have sufficient income tax liability in the relevant tax year or the previous year.
You’ll pay no Capital Gains Tax on profits (capital gain) from EIS shares held for at least three years. This is known as a CGT exemption and can significantly boost your overall returns compared to traditional investments.
If the company fails, you can claim tax relief by offsetting losses against income tax or capital gains tax. You can also benefit from CGT deferral relief, allowing you to defer capital gains tax on a capital gain by reinvesting it into EIS-qualifying companies.
After holding EIS shares for two years, they become exempt from inheritance tax through IHT relief. This makes EIS a valuable estate planning tool for many investors.
EIS Eligibility for Companies
To qualify for EIS, a company must be UK-based with a permanent establishment in the UK. The company's gross assets and other criteria are part of the qualifying conditions for an EIS qualifying company, and its gross assets cannot exceed £15 million before investment or £16 million after. The company's age, activities, and compliance with scheme rules are also important.
Qualifying subsidiaries must be at least 90% owned by the parent company to meet EIS requirements. Companies can raise funds from the following sources, including EIS and other venture capital schemes, but must stay within the £5 million annual cap and the £12 million lifetime limit. Previous investment received by the company may affect its eligibility for further EIS funding.
The company must have fewer than 250 full-time employees when the shares are issued. To be eligible, the company's first commercial sale must have occurred within the last seven years (or ten years for a knowledge intensive company, which is a business focused on significant research, development, or innovation activities). The initial investment must be made within a certain period from the company's first commercial sale.
Property development, financial services, and energy generation are among the excluded activities. The company must submit a compliance statement (form EIS1) to HMRC after issuing shares. The company cannot be listed on a recognised stock exchange at the time of share issue.
EIS Eligibility for Investors
The Enterprise Investment Scheme (EIS) is designed for individual investors who are not connected to the company—meaning you can’t be an employee, paid director, or hold more than 30% of the shares.
Only qualifying investors who meet specific criteria can benefit from EIS tax reliefs. To keep your tax reliefs, you must hold the shares for at least three years.
EIS investors are subject to a maximum investment of £1 million per tax year, or £2 million if investing in knowledge-intensive companies. Your shares must be paid in full, in cash, when they’re issued.
There cannot be any pre-arranged exit plans or risk protection arrangements. These rules ensure the investment carries genuine commercial risk as intended by the scheme.
EIS vs SEIS: What's the Difference?
SEIS (Seed Enterprise Investment Scheme) is designed for very early-stage companies, while EIS suits slightly more established businesses. SEIS investors can benefit from higher rates of tax relief, including 50% income tax relief and specific capital gains tax (CGT) exemptions, such as CGT reinvestment relief and deferral relief, which are not available under EIS.
With SEIS, you can invest up to £100,000 annually, whereas EIS allows up to £1 million. Companies can raise a maximum of £150,000 under SEIS, compared to £5 million under EIS.
SEIS companies must be under two years old with assets under £200,000 – much smaller than EIS-eligible firms. I once invested in a friend’s tech startup through SEIS before later supporting their growth round via EIS, experiencing both schemes firsthand. Previous investment under SEIS can impact a company's eligibility for EIS, as companies must comply with rules regarding the timing and amount of prior funding to qualify for EIS.
In practice, EIS tax relief works differently from SEIS. EIS offers 30% income tax relief, the ability to carry back relief to a previous tax year, and deferral of capital gains, while SEIS provides higher upfront relief and unique CGT exemptions. The eligibility criteria, relief mechanisms, and risk profiles also differ between the two schemes.
How to Claim Your EIS Tax Relief
Before claiming any relief, the company must first submit a compliance statement (form EIS1) to HMRC to confirm its eligibility for the Enterprise Investment Scheme. Only after HMRC has approved this compliance statement will investors receive their EIS3 certificate from the company. This typically arrives 4-6 months after your investment, confirming HMRC has approved the arrangement.
Claim via your Self Assessment tax return for the tax year in which the shares were issued. You can carry back your relief to the previous tax year in some cases, which is handy if you’ve used up your current year’s allowance.
Keep all your investment documentation and certificates safe – HMRC may ask to see them. You generally have five years from the tax year’s filing deadline to make your claim.
The relief can be claimed as a reduction in your tax bill or, in some cases, as a tax refund. This flexibility makes EIS particularly attractive to higher-rate taxpayers.
Final Thoughts
EIS represents one of the UK's most successful initiatives for stimulating investment in growing businesses. It offers substantial tax advantages while encouraging capital flow to innovative companies.
For investors, it provides a tax-efficient method of supporting businesses with significant upside potential. The tax reliefs help offset the inherent risks of investing in early-stage companies.
Whether you're an investor or entrepreneur, understanding EIS can unlock significant financial benefits. It's a powerful tool for portfolio diversification and tax planning while contributing to UK economic growth.
Pie.tax: Simplifying EIS Tax Relief
Getting to grips with EIS tax reliefs shouldn't be complicated. At Pie.tax, we make it easy to include your EIS investments in your Self Assessment.
You can add your EIS investments directly to the platform, and we’ll help ensure they’re properly accounted for in your tax return.
If you’re unsure about anything, you can ask our Pie.tax experts for help with any EIS-related queries, ensuring you get the right guidance when you need it.
Explore Pie.tax to see how we can help you manage your EIS investments with confidence and ease when it’s time to file your return.
Quick and Easy Guide to Adding EIS Tax Relief in the Pie App
Follow these steps to add EIS tax Relief
