Enterprise Investment Scheme (EIS)

How the EIS Reduces Your Tax Bill

The Enterprise Investment Scheme encourages investment in small, higher-risk companies by offering tax reliefs to individual investors. You can invest up to £1 million per tax year (or £2 million if the excess is in “knowledge-intensive” companies).^[1]

Tax Reliefs Available

EIS offers four main tax benefits:^[1]

Income Tax Relief (30%)

You can claim 30% Income Tax relief on the amount invested. Invest £10,000 and reduce your tax bill by £3,000. You must hold the shares for at least 3 years or the relief is clawed back.

CGT Exemption

Any gain on the EIS shares is exempt from CGT, provided you claimed Income Tax relief and held them for 3+ years.^[4]

CGT Deferral

You can defer a capital gain from any asset by reinvesting the gain into EIS shares. The deferred gain becomes chargeable when you dispose of the EIS shares.

Loss Relief

If the company fails, you can offset your loss (net of Income Tax relief received) against Income Tax or capital gains in the year of disposal.

Qualifying Companies

The company must meet strict conditions, including:^[2]

Fewer than 250 employees
Gross assets no more than £15 million before the investment
Less than 7 years old (or 10 for knowledge-intensive companies)
Carrying on a qualifying trade (most trades qualify; property development and financial services generally don’t)

How to Claim

The company issues you an EIS3 certificate (compliance certificate)^[3]
Claim the 30% Income Tax relief on your Self Assessment return^[5]
You can also claim CGT deferral relief on the same return

Carry back: You can treat all or part of your EIS investment as if it were made in the previous tax year, claiming relief against that year’s Income Tax instead. Claims are made through your Self Assessment return, which you can submit online with HMRC-recognised software.

Important Considerations

EIS investments are high-risk — small companies can fail
Shares are typically illiquid — you may not be able to sell easily
You must not be connected to the company (e.g. not an employee or hold more than 30% of shares)
Tax relief is only available if you’re a UK taxpayer

Frequently Asked Questions

What tax relief do you get with the Enterprise Investment Scheme?

EIS offers 30% Income Tax relief on investments up to £1 million per year, CGT exemption on gains from EIS shares, the ability to defer capital gains from other assets, and loss relief if the company fails.

How long must I hold EIS shares to keep the tax relief?

You must hold the shares for at least 3 years. If you sell or dispose of them before that, the 30% Income Tax relief is clawed back by HMRC.

Can I use EIS to defer a capital gain?

Yes. You can defer a capital gain from any asset by reinvesting the gain amount into qualifying EIS shares. The deferred gain becomes chargeable when you eventually dispose of the EIS shares.

What happens if an EIS company fails?

If the company fails, you can offset your loss (net of any Income Tax relief you received) against either your Income Tax or your capital gains in the year of disposal, providing valuable downside protection.

Sources

Enterprise Investment Scheme — GOV.UK
Tax relief for investors using venture capital schemes — GOV.UK
EIS compliance statements — GOV.UK
Capital Gains Tax: reliefs — GOV.UK
Self Assessment: claim tax relief — GOV.UK