Enterprise Investment
Scheme (EIS)
Tax-efficient investing in growing UK businesses. Income tax relief, tax-free dividends, and expert guidance from an FT Top 100 adviser.
About EISs
The Enterprise Investment Scheme (EIS) is one of the UK's most generous tax incentives for private investors. Set up by the government in 1994 to direct capital into small, early-stage British companies, EIS gives investors a package of tax reliefs in return for taking on the risk of backing businesses at the point where they need the funding most.
For higher-rate taxpayers with a significant income tax bill, a capital gain they'd rather not pay tax on, or an estate they want to pass on efficiently, EIS can reduce your income tax, defer the gain, and take assets outside your estate for inheritance tax. It's also high risk. The companies that qualify are small, unquoted, and early-stage. Some will fail. The tax reliefs are generous precisely because the underlying investments aren't for everyone.
Since the scheme launched, EIS and its sister scheme SEIS have channelled £34 billion into around 59,000 UK businesses. In the 2023/24 tax year alone, 3,780 companies raised £1.575 billion through EIS.
At Vintage Wealth Management, we look at EIS as part of your broader plan covering pensions, investments, inheritance tax, and protection. We model the tax position, assess how EIS fits with your existing portfolio, and help you choose between single-company investments, generalist EIS funds, and knowledge-intensive EIS funds.
How does EIS work?
The Enterprise Investment Scheme is a UK government scheme that gives investors up to 30% income tax relief for buying newly issued shares in qualifying early-stage companies. You invest directly into the business, hold the shares for at least three years, and in return unlock a package of tax reliefs covering income tax, capital gains tax, and inheritance tax. The scheme has been legislated to run until at least 6 April 2035.
There are three ways to invest. You can invest directly into a single company, usually alongside other investors in a funding round. You can invest through an EIS fund, where a manager builds a portfolio of qualifying companies on your behalf. Or you can invest through a knowledge-intensive (KI) EIS fund, which is an HMRC-approved structure that lets you claim the tax relief in one go once the fund closes.
You can't claim any tax relief until the company issues you an EIS3 certificate, or an EIS5 if you invested through an approved KI fund. That usually arrives a few months after the investment, sometimes longer for single-company deals. If the company fails during the three-year holding period, you don't lose everything. The shares themselves may be worthless, but you keep the income tax relief already claimed and you can offset the loss against income tax or capital gains tax at your marginal rate.
What tax reliefs does EIS offer?
EIS gives investors five separate tax reliefs. Which ones matter most depends on whether you're trying to reduce an income tax bill, defer a capital gain, protect against the downside, or plan for inheritance tax. Most clients benefit from a combination.
Income tax relief
You can claim 30% income tax relief on the amount you invest, up to £1 million per tax year. That cap rises to £2 million if any amount above £1 million is invested in knowledge-intensive companies. The relief reduces your income tax liability directly, so a £100,000 investment cuts your tax bill by £30,000. It can only reduce your tax to zero; it won't create a refund beyond what you've paid.
You also have the option to carry back all or part of the investment to the previous tax year, subject to that year's allowance. This is useful if your income was higher last year, or if you've already paid tax you'd rather recoup. You must hold the shares for at least three years from the date of issue to keep the relief. If you sell earlier, or the company loses its EIS status during that period, HMRC will claw the relief back.
Capital gains tax deferral
If you've made a capital gain on another asset, you can defer the tax on it by reinvesting the gain into EIS shares. The reinvestment has to happen within a window of three years before the gain, or one year after it. There's no upper limit on the size of gain you can defer, which makes this one of the most powerful tools available for anyone sitting on a large disposal.
The gain isn't wiped out; it comes back into charge when you sell the EIS shares. At that point, you can either pay the CGT at the rate prevailing at the time, or defer it again by reinvesting into another EIS. Held until death, the deferred gain is extinguished entirely.
Tax-free growth
Any growth in the value of your EIS shares is free from capital gains tax when you sell them, provided you claimed income tax relief when you invested and held the shares for at least three years. For successful investments, the tax-free growth is often where EIS pays off most. A company that grows tenfold over five years produces a gain that would normally be taxable at 24% for higher-rate taxpayers; under EIS, that gain is yours.
Loss relief
If the company fails or the shares fall below what you paid for them, you can offset the loss against your income tax or capital gains tax bill at your marginal rate. The loss is calculated after deducting any income tax relief you already claimed. For a 45% taxpayer who invested £10,000 and lost everything, the net cost of the investment works out at £3,850 rather than the full £10,000, because the combination of 30% income tax relief and 45% loss relief on the remaining £7,000 absorbs most of the hit.
Loss relief is what makes the risk profile of EIS workable for many investors. It's the reason EIS portfolios can tolerate individual company failures without the overall return being destroyed, provided the winners are large enough.
Inheritance tax relief
EIS shares qualify for business relief, meaning they pass to beneficiaries free of inheritance tax provided you've held them for at least two years and still hold them at the point of death. Unlike most IHT planning tools, there's no seven-year rule to wait out. Two years, and the shares are outside your estate.
From 6 April 2026, business relief is capped at £2.5 million per individual for 100% relief (rising to £5 million for married couples and civil partners, as the allowance is transferable). Anything above that cap attracts 50% relief instead of 100%, which means an effective IHT rate of 20% on the excess.
If you're using EIS primarily as an IHT planning tool, this changes the sizing but not the principle. See our inheritance tax planning page for more detail on how business relief fits into a wider estate plan.
Which companies qualify for EIS?
EIS is targeted at small, early-stage UK businesses. HMRC applies strict conditions to the company, the investor, and how the funds are used.
A qualifying EIS company must be UK-based, unquoted, and carry on a qualifying trade. It must have fewer than 250 full-time employees, gross assets of no more than £30 million before investment, and be less than seven years old from its first commercial sale. From 6 April 2026, a company can raise up to £10 million per year, up to a lifetime total of £24 million.
Certain activities are excluded regardless of company size or age. Property development, financial services, legal and accountancy work, hotels, nursing homes, farming, and subsidised energy generation are the main ones. EIS tends to concentrate in technology, life sciences, manufacturing, and consumer products.
Company criteria
Knowledge-intensive companies
A knowledge-intensive company (KIC) spends significant resources on research, development, or innovation. To qualify, it must either spend at least 15% of its operating costs on R&D in the most recent year, or employ a workforce where at least 20% of staff hold a relevant master's degree or higher in an R&D role.
KICs have more flexibility. The company age limit is ten years rather than seven, the employee cap rises to 500, and the annual fundraising limit doubles to £20 million. For investors, the annual EIS allowance rises from £1 million to £2 million, provided the excess is invested in KICs. This is why knowledge-intensive EIS funds suit higher earners with large income tax bills to offset.
Investor criteria
You need to be a UK taxpayer. You can't be a paid employee or director of the company you're investing in, unless you became a director after investing. You also can't hold more than a 30% stake, counting shares, voting rights, and loans together. The 30% test includes your spouse, parents, children, and grandchildren, so family connections to a target company matter.
How does EIS compare to SEIS and VCT?
EIS sits alongside two other UK venture capital schemes: the Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCTs). All three channel investment into smaller companies and offer tax reliefs, but they suit different stages of company and different investor profiles.
SEIS targets companies at an earlier stage than EIS. Qualifying companies must be under three years old with fewer than 25 employees and gross assets of no more than £350,000. For investors, SEIS offers 50% income tax relief on up to £200,000 per year, plus a 50% CGT reinvestment exemption where half of any reinvested gain is exempt entirely. Loss relief, the three-year hold, and business relief for inheritance tax all work the same way as EIS. Both allowances can be used in the same tax year
SEIS
Venture Capital Trusts
A Venture Capital Trust is a listed investment company that holds a portfolio of qualifying unquoted companies. You buy VCT shares on the London Stock Exchange and the manager handles the underlying investments, making VCTs more accessible and more liquid than direct EIS.
From 6 April 2026, VCT income tax relief is 20% on investments up to £200,000 per year, reduced from 30%. You need to hold the shares for at least five years to keep the relief. Dividends paid by the VCT are tax-free and any capital gain on disposal is also tax-free. VCTs don't offer CGT deferral, loss relief against income, or business relief for inheritance tax.
At a glance
| EIS | SEIS | VCT | |
|---|---|---|---|
| Income tax relief | 30% | 50% | 20% (from April 2026) |
| Annual investment limit | £1m (£2m with KICs) | £200,000 | £200,000 |
| Minimum holding period | 3 years | 3 years | 5 years |
| CGT on growth | Tax-free | Tax-free | Tax-free |
| CGT deferral or reinvestment | Deferral, uncapped | 50% reinvestment relief | None |
| Tax-free dividends | No | No | Yes |
| Inheritance tax relief | Yes (after 2 years) | Yes (after 2 years) | No |
How do you claim EIS tax relief?
You claim EIS tax relief through self-assessment, but you can't do anything until the company issues you an EIS3 certificate. The certificate confirms HMRC has approved the company and the share issue for EIS purposes.
For a conventional EIS fund, you'll receive one EIS3 per underlying company in the portfolio. For an HMRC-approved knowledge-intensive fund, you'll receive a single EIS5 once the fund closes. Certificates typically arrive a few months after the investment, but can take longer for single-company deals.
Once you have the certificate, income tax relief is claimed on your tax return under 'Other tax reliefs.' If you pay tax through PAYE and don't usually file a self-assessment return, you can instead send the claim form from your EIS3 to HMRC to adjust your tax code.
CGT deferral and loss relief have their own claim processes. Deferral is claimed on the capital gains pages of your return using the form attached to the EIS3. Loss relief is claimed against income tax or capital gains tax depending on which is more useful to you. Both can interact with other reliefs on your return, so the order of claims matters when more than one is in play.
What's changed for EIS in 2026 and what's coming in 2027?
Three changes came into force on 6 April 2026.
EIS company fundraising limits doubled, opening the scheme to larger businesses.
VCT income tax relief dropped from 30% to 20%. EIS relief stayed at 30%.
Business relief is capped at £2.5 million per individual for 100% relief, with 50% relief above that.
From 6 April 2027, most unused pension funds will be brought into the estate for inheritance tax purposes. If you've been preserving your pension to pass on tax-free, that strategy needs a rethink. Business-relief-qualifying assets, including EIS shares held for at least two years, may do more of the work pensions previously did.
Why work with Vintage Wealth Management?
VCTs don't sit in a silo. They sit alongside your pension, your ISA, your other investments, and your wider tax position. We look at all of that before recommending whether a VCT makes sense, how much to invest, and how it fits with everything else.
VintEIS doesn't sit in a silo. It has to work alongside your pensions, investments, capital gains position, and wider estate plan. We look at the full picture and build a plan you can act on.
Vintage Wealth Management has been advising on tax-efficient investment and estate planning for over a decade. We're named in the FT Adviser UK Top 100 Financial Advisers every year since 2021, and our team includes Chartered Financial Planners and Fellows of the Personal Finance Society who specialise in tax-efficient investment, estate planning, and wealth transfer.
We've got offices in Central London, North West London, Portsmouth, Buckinghamshire, Swindon, and Dublin, and we work with clients across the UK.
Frequently asked questions about EISs
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EIS offers 30% income tax relief on investments up to £1 million per tax year, which works out at a maximum of £300,000 of relief in a single year. If you invest at least £1 million in knowledge-intensive companies, the annual limit rises to £2 million, with maximum relief of £600,000. The relief reduces your income tax bill directly and can be carried back to the previous tax year if you'd rather apply it there.
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You don't lose the income tax relief you already claimed. The shares themselves may be worthless, but you can claim loss relief on the remaining loss against income tax or capital gains tax at your marginal rate. For a 45% taxpayer, the combination of 30% income tax relief and 45% loss relief on a failed £10,000 investment brings the net cost down to around £3,850.
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Not if you're an employee or paid director of the company you're investing in, unless you became a director after making the investment - the "business angel" exception. You also can't hold more than a 30% stake, and the 30% test includes shares held by your spouse, parents, children, and grandchildren. Family connections to a target company matter for eligibility.
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SEIS targets companies at an earlier stage than EIS. A qualifying SEIS company must be under three years old, have fewer than 25 employees, and gross assets of no more than £350,000. For investors, SEIS offers 50% income tax relief (rather than 30%) on investments up to £200,000 per year, plus a 50% CGT reinvestment exemption. Both schemes can be used in the same tax year.
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You lose the income tax relief claimed on those shares. HMRC will claw it back through your tax return. The three-year clock runs from the date the shares were issued to you, or from when the company started trading if that's later. The same three-year minimum also applies for the capital gains tax exemption on any growth in the shares.
Disclaimer
The information supplied is based upon our understanding of current UK law and HM Revenue and Customs (HMRC) practice. Tax law and HMRC practice may change from time to time. The value of any tax relief will depend on the individual circumstances of the investor.
Business Property Relief (BPR) is subject to HMRC rules and may change in the future. Qualification depends on individual circumstances and is not guaranteed. Investments that aim to qualify for BPR, such as shares in smaller or unlisted companies, carry higher risk and their value can fall as well as rise. Investors may not get back the full amount invested. BPR typically requires assets to be held for at least two years and relief will only apply if the qualifying conditions are met at the time of death.
Your capital is at risk – your investment can fall as well as rise in value so you could get back less than you invest. In addition, because AIM-listed companies tend to be smaller, more volatile and subject to less stringent checks than those quoted on the main London Stock Exchange, the risks are greater. The Financial Conduct Authority do not regulate tax planning or trusts.
The information contained within this communication does not constitute financial advice and is provided for general information purposes only. Links to related sites have been provided for information only. Their presence on this blog does not mean that the firm endorses any of the information, products or views published on these sites. No warranty, whether express or implied is given in relation to such information. Vintage Wealth Management or any of its associated representatives shall not be liable for any technical, editorial, typographical or other errors or omissions within the content of this communication.