EIS CGT Deferral Relief: How to Defer Capital Gains Tax with EIS

If you have recently sold a property, business, or investment at a profit, you are facing a capital gains tax bill. For higher and additional rate taxpayers, that can mean paying 20% on investment gains or up to 24% on residential property gains.

EIS CGT deferral relief offers a way to postpone that tax bill — potentially indefinitely — by reinvesting the gain into qualifying EIS shares. This guide explains exactly how it works, the qualifying conditions, time limits, and how deferral interacts with the other EIS tax reliefs.

What Is EIS CGT Deferral Relief?

EIS CGT deferral relief allows you to defer a capital gain by investing the gain (or part of it) into shares in a qualifying EIS company. The deferred gain is not written off — it is held in suspension until a “chargeable event” occurs, most commonly the disposal of the EIS shares.

The relief is governed by Schedule 5B of the Taxation of Chargeable Gains Act 1992 (TCGA 1992). It is entirely separate from the 30% income tax relief and the CGT exemption on EIS share gains, though all three can apply to the same investment.

Key point: unlike EIS income tax relief, there is no annual cap on the amount of CGT deferral relief you can claim. If you have a £5 million gain and invest £5 million in qualifying EIS shares, you can defer the entire amount.

How EIS CGT Deferral Works Step by Step

1. Realise a chargeable gain

You sell an asset — shares, property, a business, or any other chargeable asset — and make a gain. The gain must be a chargeable gain for CGT purposes. It can arise from any asset class; there is no requirement that the original asset be related to the EIS company or its trade.

2. Subscribe for qualifying EIS shares within the time window

You must subscribe for new shares in a qualifying EIS company. The shares must be issued within the qualifying period: 1 year before to 3 years after the date the gain arose.

This is one of the most generous time windows in UK tax relief. It means you can invest in an EIS company before you even realise the gain, provided the shares are issued no more than 12 months before the disposal.

3. Claim the relief

You claim deferral relief on your Self Assessment tax return. You will need the EIS3 certificate from the company (or its agent) to make the claim. You can claim deferral on all or part of the gain, up to the amount invested.

4. The gain is held in suspension

HMRC holds the deferred gain in suspension. No CGT is payable until a chargeable event occurs.

5. Chargeable event triggers the deferred gain

The deferred gain comes back into charge when you dispose of the EIS shares (or if certain other events occur, such as the company ceasing to qualify). At that point, the original gain is treated as arising in the tax year of the chargeable event, not the year it originally arose.

Worked Example 1: Basic CGT Deferral

Scenario: Sarah sells a buy-to-let property in July 2025 and realises a capital gain of £200,000. She is an additional rate taxpayer.

Without EIS deferral:

• CGT at 24% (residential property rate) = £48,000
• Sarah pays £48,000 in January 2027

With EIS deferral:

• Sarah invests £200,000 in EIS-qualifying shares in October 2025 (within the 3-year window)
• She claims deferral relief on her 2025/26 Self Assessment return
• CGT payable now: £0
• The £200,000 gain is held in suspension until she sells the EIS shares

Additional benefit — income tax relief:

• Sarah also claims 30% EIS income tax relief: £200,000 x 30% = £60,000 off her income tax bill
• Her net cash outlay on the EIS investment is effectively £140,000

Worked Example 2: Deferral with CGT Exemption (The Double Benefit)

This is where EIS CGT deferral becomes truly powerful. By combining deferral with the EIS CGT exemption, an investor can shelter both the original gain and the gain on the EIS shares.

Scenario: James sells quoted shares in March 2025 for a gain of £150,000. He invests £150,000 in an EIS-qualifying technology company in September 2025.

Year 1 (2025/26):

• James claims CGT deferral on the £150,000 gain — CGT payable: £0
• James claims 30% income tax relief: £150,000 x 30% = £45,000 reduction in income tax
• Net cost of EIS investment: £105,000

Year 4 (2028/29):

• The EIS company is acquired. James’s shares are worth £375,000 (a £225,000 gain on his EIS investment)
• James has held the shares for more than 3 years, so the £225,000 gain on the EIS shares is CGT-exempt
• However, the original deferred gain of £150,000 now crystallises
• CGT on the deferred gain at 20%: £30,000

Net result:

• James turned a £150,000 taxable gain and a £225,000 new gain into a single £30,000 tax bill
• He received £45,000 income tax relief upfront
• His effective tax rate across both gains (£375,000 total) is just 8%

Rolling deferral option: instead of paying the £30,000, James could reinvest £150,000 of the proceeds into another EIS company and defer the gain again. This “rolling deferral” can continue indefinitely, provided qualifying EIS investments are available.

Qualifying Conditions

Investor conditions

• You must subscribe for new ordinary shares (not purchased from an existing shareholder)
• You cannot be connected to the company (broadly: not an employee, director with more than a 30% stake, or an associate of such a person). Note that being a paid director does not disqualify you from CGT deferral relief, unlike income tax relief, where the rules are stricter
• Shares must be issued within the qualifying period (1 year before to 3 years after the gain)

Company conditions

The company must meet all the standard EIS qualifying conditions:

• Carries on a qualifying trade (most trades qualify; excluded trades include property development, financial activities, legal services, and others listed in ITA 2007 s192)
• Has fewer than 250 full-time equivalent employees
• Has gross assets of no more than £15 million before the share issue (£16 million after)
• Has been trading for less than 7 years (12 years for knowledge-intensive companies)
• Is not listed on a recognised stock exchange (AIM qualifies as unlisted for these purposes)

The EIS3 certificate

The company must have received HMRC compliance approval and issued you an EIS3 certificate. This is the document you use to claim relief on your tax return. Companies that have obtained advance assurance from HMRC — confirming the company is likely to qualify — can give investors greater confidence that the EIS3 will be issued. Platforms like AdvanceAssured help founders secure this approval efficiently.

Time Limits for Claiming Deferral

The time limits for EIS CGT deferral are more generous than many investors realise:

Element	Time Limit
EIS shares issued before gain arises	Up to 12 months before
EIS shares issued after gain arises	Up to 36 months after
Total qualifying window	Up to 4 years
Claim deadline	5th anniversary of 31 January following the tax year the EIS shares were issued

Example: You realise a gain on 15 March 2025. EIS shares issued any time between 15 March 2024 and 15 March 2028 qualify for deferral of that gain.

Interaction with Other EIS Reliefs

One of the most common questions investors ask is whether CGT deferral “uses up” any of their other EIS reliefs. It does not. Here is how the reliefs interact:

Income tax relief (30%)

Entirely separate. You can claim both 30% income tax relief and full CGT deferral on the same shares. The income tax relief is subject to the annual investment limit (£1 million, or £2 million for knowledge-intensive companies). CGT deferral has no annual limit.

CGT exemption on EIS gains

If you hold EIS shares for 3+ years and sell at a profit, the gain on those shares is exempt from CGT. This exemption applies regardless of whether you also used the shares for CGT deferral. However, the deferred gain (from the original asset) still crystallises on disposal.

Loss relief

If the EIS company fails, you can claim loss relief. The allowable loss is your investment minus any income tax relief received. The deferred gain does not crystallise if the shares become worthless — it is written off entirely. This is a significant benefit: not only do you get loss relief, but the deferred gain disappears permanently.

Common Mistakes to Avoid

1. Missing the time window

The 1-year-before/3-year-after window is generous, but investors who delay can miss it. If you are planning a significant disposal, consider making EIS investments in advance — the shares can be issued up to 12 months before the gain arises.

2. Confusing deferral with exemption

CGT deferral does not eliminate the gain. It postpones it. The gain is eliminated only if the EIS shares become worthless (see loss relief above) or if you re-defer into another EIS investment. The CGT exemption on EIS share gains is a separate relief that applies to the new gain, not the deferred one.

3. Not obtaining advance assurance

If the company later fails to obtain HMRC compliance approval, no EIS3 certificate is issued and no relief can be claimed. Investors who rely on CGT deferral as part of their tax planning should ensure the company has advance assurance before investing. This is not a legal requirement, but it is standard practice among experienced EIS investors and fund managers.

4. Investing in non-qualifying shares

Deferral relief only applies to new ordinary shares issued directly by the company. Purchasing shares from an existing shareholder, or subscribing for preference shares with excessive rights, will not qualify.

5. Becoming connected to the company

If you become connected to the company (for example, by becoming a director with a significant shareholding) after making your investment, this can trigger a chargeable event and bring the deferred gain back into charge. Take care when considering board roles in companies where you hold EIS deferral relief.

EIS CGT Deferral for Founders and Companies

If you are a founder raising investment, understanding CGT deferral is important because it is one of the primary reasons experienced investors back EIS-qualifying companies. Many angel investors and family offices specifically seek out EIS-qualifying opportunities to defer gains from property sales, business exits, or share disposals.

Having advance assurance in place before approaching investors signals that your company qualifies and that the tax reliefs — including CGT deferral — are available. This removes a significant barrier from the investment decision.

When Does the Deferred Gain Permanently Disappear?

In most cases, the deferred gain will eventually crystallise. However, there are two situations where it is permanently written off:

1. Death of the investor — if the investor dies while still holding the EIS shares, the deferred gain is extinguished. The shares pass to beneficiaries at market value with no CGT liability on the deferred gain.

2. Shares become worthless — if the EIS company fails and the shares have negligible value, the deferred gain does not crystallise. Combined with loss relief, this means the investor’s maximum downside is substantially reduced.

These provisions make EIS CGT deferral particularly attractive for older investors or those making higher-risk investments where the company may not survive.

Summary

EIS CGT deferral relief is one of the most flexible and powerful tools in the UK tax system for managing capital gains. There is no annual limit on the amount that can be deferred, the qualifying window spans up to four years, and the same shares can simultaneously provide 30% income tax relief.

When combined with the CGT exemption on EIS gains and the potential for rolling deferral, investors can effectively convert a taxable gain into a permanently sheltered one — provided they continue to invest in qualifying EIS companies.

For founders, ensuring your company has EIS advance assurance makes your raise significantly more attractive to investors who need CGT deferral. For investors, understanding the mechanics and time limits of deferral relief is essential to making the most of the scheme.