Navigating EIS Relief: A Practical Guide for UK Investors
Want to cut your tax bill while backing high-growth UK companies? The Enterprise Investment Scheme (EIS) offers generous reliefs to investors willing to support early-stage businesses.
From 30% income tax relief and CGT exemptions to loss relief and inheritance tax planning, EIS can be a powerful part of your investment strategy.
This guide breaks down how EIS works, what qualifies, and how to claim your reliefs, so you can invest smarter and with more confidence.
What is EIS Tax Relief?
The Enterprise Investment Scheme (EIS) is a government initiative designed to help smaller, higher-risk companies raise money. It offers impressive tax breaks to investors willing to take a punt on these businesses.
To be eligible for EIS tax relief, you must invest in an EIS-qualifying company, meaning not all businesses are eligible. Only companies that meet specific criteria set by HMRC are considered EIS-eligible companies.
When you invest in EIS-qualifying companies, you can claim 30% of your investment back as income tax relief. So if you invest £10,000, you could reduce your tax bill by £3,000.
You can invest up to £1 million per tax year in EIS companies (or £2 million if the companies are “knowledge-intensive”). This is the maximum investment allowed for EIS tax relief, and the maximum amount you can claim relief on each year is £300,000. There is also a minimum investment requirement—typically £500 per individual company—to qualify for EIS income tax relief.
The catch? You need to hold the shares for at least three years, and the company must be a qualifying company and meet HMRC's criteria to be considered an EIS-eligible company.
EIS Tax Relief Example: How It Works in Practice
Let’s look at a simple example. Sarah is an additional rate taxpayer who invests £50,000 as her original investment in an EIS-qualifying tech startup.
She can claim 30% of this investment as income tax relief, which works out to £15,000 (£50,000 × 30%). This is known as EIS income tax relief. Sarah can claim EIS by submitting the relevant forms to HMRC to claim relief.
If Sarah doesn’t have enough income tax liability in the current tax year, she can carry back the relief to the previous tax year. This flexibility is a major plus.
After holding her shares for four years, Sarah sells them for £80,000, making a £30,000 profit. Because she’s held the shares for more than three years, this gain is completely free from Capital Gains Tax. The investor receives both income tax relief and exemption from CGT, demonstrating how EIS tax reliefs and EIS tax benefits work in practice.
Without EIS relief, Sarah would have paid £6,000 in CGT on this gain (at 20%). So her total tax saving is £21,000 (£15,000 income tax relief + £6,000 CGT saving). The relief applies to both her income tax and capital gains, significantly reducing her tax exposure as an additional rate taxpayer. The effective cost of Sarah’s original investment, after accounting for all EIS tax reliefs, is only £35,000, making the investment much more attractive.
What If Your EIS Investment Fails?
EIS also offers protection if things go wrong, helping to safeguard the investor's capital. Let’s say Tom invests £20,000 in an EIS company that unfortunately goes bust.
He’s already received £6,000 in income tax relief (30% of £20,000). His actual loss is £14,000 (£20,000 - £6,000).
Tom can claim loss relief against either his income tax or capital gains tax. As a higher-rate taxpayer (40%), he could offset £14,000 against his income, saving another £5,600 in tax. EIS disposal relief may also be available if the shares are disposed of after the qualifying period, providing further tax advantages such as exemption from capital gains tax.
Claiming relief for losses and any disposal relief helps protect the investor's capital. Tom must follow the correct steps for claiming relief, including submitting the appropriate forms to HMRC, to ensure he receives all available loss relief and disposal relief.
In this worst-case scenario, Tom’s £20,000 investment has actually only cost him £8,400 after tax reliefs. That’s risk reduction of 58%!
Carrying Forward and Back Your EIS Relief
Sometimes you might not have enough income tax liability to use all your EIS relief in one go. No worries – you have options.
You can carry back the relief to the previous year if you meet the conditions. For example, if you invest £100,000 in the 2023/24 tax year, you could claim the entire £30,000 relief against your 2022/23 income tax.
To do this, you’ll need to submit your claim on your Self Assessment tax return. Claiming relief requires you to complete the relevant section and attach your EIS3 certificate as evidence—this is essential for HMRC to process your claim.
There’s no option to carry forward EIS relief to future years, so planning your investments around your tax situation is important. The relief applies only if you have sufficient tax liability in the previous year. By planning your claims across tax years, you can achieve the maximum tax reduction allowed under EIS rules.
I once helped a client who’d forgotten about an EIS investment made five years earlier. Unfortunately, he’d missed the window to claim his tax relief. Don’t make the same mistake!
EIS vs SEIS: What's the Difference?
SEIS (Seed Enterprise Investment Scheme) is EIS’s little brother, designed for very early-stage companies.
It offers even more generous tax relief – 50% rather than 30%. So a £10,000 SEIS investment would give you £5,000 off your tax bill, provided it is an EIS qualifying investment.
The catch? You can only invest up to £100,000 per year in SEIS companies, compared to £1 million with EIS. However, if you have invested in knowledge-intensive companies under EIS, the annual investment limit increases to £2 million.
SEIS companies must be very young (less than 2 years old), with assets under £200,000. EIS companies can be larger and more established. Both SEIS and EIS exclude companies whose main activity is property development, so businesses significantly involved in property development are generally not eligible for these schemes.
For investors with an appetite for risk, a mix of SEIS and EIS investments can be a smart tax strategy.
Managing Risk with EIS Investments
While the Enterprise Investment Scheme offers generous tax incentives, it’s important to remember that EIS investments are inherently high-risk, as they focus on early-stage companies that may not yet have a proven track record. However, there are effective ways to manage this risk and make the most of the tax advantages available.
One of the best strategies is diversification—spreading your investments across a range of EIS-qualifying companies in different industries. This helps to balance out the risk, as the success of one company can offset the underperformance of another.
Another important risk management tool is loss relief. If an EIS investment doesn’t work out and the company fails, you can claim loss relief against your income tax or capital gains tax liability, reducing the financial impact of the loss. This means that even if an investment doesn’t succeed, you can still benefit from a lower tax bill.
Final Thoughts
EIS offers remarkable tax benefits if you’re willing to invest in growing businesses. The 30% income tax relief, tax-free gains, and loss relief create a safety net for higher-risk investments.
In addition to these, EIS shares can also qualify for inheritance tax relief if held for at least two years, meaning they may be passed on free from inheritance tax. This makes EIS investments a valuable tool for inheritance tax planning and broader estate management.
There are several CGT reliefs available, including cgt disposal relief, cgt deferral relief, cgt reinvestment relief, and capital gains deferral relief. These can help defer or eliminate capital gains tax on chargeable gains. If a gain arose from a previous asset sale, reinvesting it into EIS shares can result in a deferred gain and postpone the need to pay CGT until the EIS shares are disposed of.
Investing through an EIS fund can provide diversification and professional management, while still allowing you to access all the EIS tax reliefs.
Always check that companies have HMRC advance assurance before investing. Keep all your paperwork, especially the EIS3 certificates you’ll need for your tax return.
Remember – while tax relief is great, it shouldn’t be the only reason for investing. The underlying business still needs to be sound!
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
