EIS Tax Relief Explained: A Complete Guide for UK Investors

The Enterprise Investment Scheme (EIS) is a UK government scheme designed to encourage investment in smaller, higher-risk companies. For investors, EIS offers a combination of tax reliefs that substantially reduces both the cost and risk of investing.

This guide explains each type of EIS tax relief, how to claim it, and what conditions apply — all based on current HMRC guidance and the Income Tax Act 2007.

The Three Pillars of EIS Tax Relief

EIS offers three distinct types of tax relief, each addressing a different concern for investors:

1. Income Tax Relief — 30% Upfront

When you invest in a qualifying EIS company, you can claim 30% of your investment back as income tax relief. The maximum investment qualifying for relief is £1,000,000 per tax year (£2,000,000 if the excess is invested in knowledge-intensive companies).

Example: You invest £100,000 in an EIS-qualifying startup. You claim £30,000 as income tax relief, reducing your effective cost to £70,000.

The relief is set against your income tax liability for the tax year in which the shares are issued. You can also elect to carry back relief to the previous tax year.

2. Capital Gains Tax Exemption — 0% on Gains

If you hold EIS shares for at least 3 years and sell them at a profit, that gain is completely exempt from Capital Gains Tax. There is no cap on the amount of gain that can be exempted.

This means your upside is entirely tax-free, provided you meet the holding period requirement.

3. Loss Relief — Downside Protection

If the EIS company fails or you sell shares at a loss, you can claim loss relief. The allowable loss is calculated as your investment minus any income tax relief you received. This loss can be offset against either:

• Income tax (at your marginal rate), or
• Capital gains tax

Example: You invested £100,000, received £30,000 income tax relief. The company fails, shares are worth £0. Your allowable loss is £70,000 (£100,000 minus £30,000). If you are a 45% taxpayer, offsetting against income gives you £31,500 back. Your total loss is just £38,500 on a £100,000 investment — an effective downside of 38.5p in the pound.

Capital Gains Tax Deferral

In addition to the three core reliefs, EIS also offers CGT deferral. If you have a capital gain from any source (property, shares, business sale), you can defer that gain by investing the proceeds into EIS-qualifying shares.

The deferred gain becomes payable when you dispose of the EIS shares — but if you hold for 3+ years, the new gain on the EIS shares themselves is exempt. This makes EIS a powerful tool for reinvesting gains.

Qualifying Conditions for Investors

To claim EIS relief, both you and the company must meet specific conditions:

Investor conditions:

• You must not be connected to the company (generally, you cannot hold more than 30% of the shares or be an employee/director before the investment, with limited exceptions for new director-investors)
• You must hold the shares for a minimum of 3 years

Company conditions:

• UK permanent establishment
• Fewer than 250 full-time equivalent employees
• Gross assets under £15 million before investment (£16 million after)
• Must be carrying on a qualifying trade (not an excluded activity)
• Shares must be new ordinary shares with no preferential rights
• Must have been trading for fewer than 7 years (12 for knowledge-intensive companies)

How to Claim EIS Relief

The process is:

1. Company applies for advance assurance — HMRC confirms the company is likely to qualify
2. Investment is made — Investor subscribes for new shares
3. Company issues EIS3 certificate — After HMRC grants compliance, the company issues you an EIS3 form
4. Investor claims via Self Assessment — You claim the relief on your tax return using the EIS3

EIS vs SEIS: Key Differences

Feature	EIS	SEIS
Income tax relief	30%	50%
Annual investment limit	£1,000,000	£200,000
CGT exemption	Yes (3-year hold)	Yes (3-year hold)
Company age limit	7 years	3 years
Employee limit	250	25
Gross assets limit	£15 million	£350,000
Legislation	ITA 2007 Part 5	ITA 2007 Part 5A

Many investors use SEIS for early-stage investments and EIS for later rounds, maximising their tax-efficient allocation across stages.

EIS Capital Gains Tax Deferral: A Deeper Look

CGT deferral is one of the most powerful but least understood aspects of EIS. Here is how it works in practice:

How CGT Deferral Works

If you have made a capital gain from any source — selling a property, disposing of shares, or exiting a business — you can defer that gain by reinvesting some or all of the proceeds into EIS-qualifying shares.

The deferral is not limited to gains from the same type of asset. You can defer a property gain by investing in a tech startup, for example.

Timing Rules

You can claim deferral if you invest in EIS shares:

• Up to 1 year before the gain arose, or
• Up to 3 years after the gain arose

This window gives considerable flexibility for tax planning.

Worked Example: CGT Deferral

You sell a buy-to-let property in January 2026, realising a gain of £200,000. At the current CGT rate of 24% for higher-rate taxpayers, your liability would be £48,000.

Instead, you invest £200,000 in an EIS-qualifying company in March 2026. The £200,000 gain is fully deferred — no CGT payable now.

You also claim 30% EIS income tax relief: £60,000 off your income tax bill.

If you hold the EIS shares for 3+ years and sell at a profit, the new gain on the EIS shares is exempt from CGT. The deferred gain becomes payable when you eventually dispose of the EIS shares, but further EIS investments can defer it again.

For a full guide to CGT deferral strategies, see our EIS CGT deferral guide.

EIS Loss Relief: Protecting the Downside

One of the most compelling aspects of EIS for investors is the loss relief protection. If an EIS company fails, the effective cost to the investor is dramatically reduced.

How Loss Relief Is Calculated

The allowable loss is:

Investment amount - Income tax relief received = Allowable loss

This loss can be offset against either income tax or capital gains tax, at the investor’s choice.

Worked Example: Loss Relief for a 45% Taxpayer

You invest £100,000 in an EIS company and claim £30,000 income tax relief (30%).

The company fails. Your shares are worth £0.

• Allowable loss: £100,000 - £30,000 = £70,000
• Loss relief against income (45% rate): £70,000 × 45% = £31,500
• Total received back: £30,000 (income tax relief) + £31,500 (loss relief) = £61,500
• Effective loss: £38,500 on a £100,000 investment — just 38.5p in the pound

For basic-rate taxpayers (20%), the effective downside is 56p in the pound. For additional-rate taxpayers (45%), it drops to 38.5p.

For more detail on claiming loss relief, see our dedicated EIS loss relief guide.

EIS Income Tax Relief: Carry Back Rules

You can elect to treat all or part of your EIS investment as if it were made in the previous tax year. This is useful if:

• You had a higher income in the previous year
• You have already used your current year’s EIS allowance
• You want to trigger a tax refund for the prior year

The carry-back election must be made on your Self Assessment return. The investment is still subject to the £1,000,000 annual limit for the year to which it is carried back.

For a full walkthrough of claiming EIS income tax relief, see our EIS income tax relief guide.

EIS Inheritance Tax Relief

EIS shares can also qualify for Business Property Relief (BPR) after being held for 2 years. If the shares qualify, they are exempt from inheritance tax at 100%, making EIS investments a useful component of estate planning.

This is separate from the income tax and CGT reliefs and applies automatically to qualifying unquoted trading company shares.

Summary: The Full EIS Tax Relief Stack

For a qualifying EIS investment held for 3+ years:

Relief	Benefit	Timing
Income tax relief	30% of investment returned	Year of investment (or carried back)
CGT exemption	0% tax on gains	On disposal after 3 years
CGT deferral	Defer existing gains	On investment
Loss relief	Offset losses against income	If company fails
IHT relief (BPR)	100% IHT exemption	After 2 years

No other UK investment scheme offers this combination of reliefs. The effective risk-adjusted return on an EIS investment is significantly enhanced by the tax treatment.

Why Advance Assurance Matters

Advance assurance is not legally required for EIS relief, but it gives investors confidence that HMRC has reviewed the company and indicated it qualifies. Without it, investors bear the risk that HMRC may later determine the company does not qualify, clawing back any relief already claimed.

Most angel networks, EIS funds, and experienced investors require advance assurance before committing capital. Getting it early in the fundraising process removes the biggest objection investors have.

Read our SEIS advance assurance guide to understand the full application process.

Next Steps

If you are investing in or raising for an EIS-qualifying company, getting advance assurance in place early is critical. It protects investors, accelerates fundraising, and demonstrates credibility.

Check whether your company qualifies with the free eligibility checker, or start your advance assurance application today.