EIS and SEIS: The Tax Reliefs Your Accountant Might Not Have Mentioned

If you’re looking for ways to legally reduce your tax bill while investing, it’s worth understanding the following two government-backed schemes: EIS and SEIS.

EIS stands for the Enterprise Investment Scheme.

SEIS stands for the Seed Enterprise Investment Scheme.

These two schemes allow you to invest in small, growing UK businesses and benefit from generous tax reliefs.

Starting and growing a business is difficult.

Many young companies struggle to raise money because they don’t yet have a long trading history or proven profits.

EIS and SEIS help these emerging businesses attract investment by rewarding investors with valuable tax benefits.

In other words, in return for taking on more risk, you’re given the chance to pay less tax.

The exact tax relief depends on whether you’re investing through EIS or SEIS.

SEIS

If you invest through the Seed Enterprise Investment Scheme, you could receive:

✅ 50% income tax relief on your investment

✅ No Capital Gains Tax on any profits if you keep the investment for at least three years

✅ Capital gains reinvestment relief in certain circumstances

EIS

If you invest through the Enterprise Investment Scheme, you could receive:

✅ 30% income tax relief on your investment

✅ No Capital Gains Tax on any profits if you keep the investment for at least three years

✅ The ability to defer Capital Gains Tax on certain gains by reinvesting them into qualifying EIS shares

✅ In some cases, loss relief if the investment falls in value

These tax reliefs can significantly reduce the overall risk of investing, but they don’t remove it entirely.

There are some circumstances where you may not receive them, or may receive less than the headline amount.
For example:

• The company doesn’t qualify. The business must meet the HMRC rules for SEIS or EIS. If it isn’t a qualifying company, no relief is available.
• You don’t qualify as an investor. For example, if you’re connected to the company (such as being an employee in most cases, or owning too large a stake), you may not be eligible.
• You don’t pay enough income tax. The 50% (SEIS) or 30% (EIS) income tax relief can only reduce the income tax you’ve actually paid. If your income tax bill is smaller than the relief available, you won’t necessarily benefit from the full amount (although relief can sometimes be carried back to the previous tax year if the rules allow).
• You don’t keep the shares long enough. You’ll normally need to hold the shares for at least three years. Selling earlier can mean the relief is withdrawn or has to be repaid.
• The company stops qualifying. If the company breaches the scheme rules during the qualifying period, tax relief may be withdrawn.
• You don’t claim the relief. Income tax relief isn’t applied automatically. You need to claim it using the SEIS3 or EIS3 certificate the company provides, usually through your Self Assessment tax return or by asking HMRC to adjust your tax code.

These schemes are generally aimed at experienced investors who:

• Have already used much or all of their ISA allowance.
• Are comfortable taking higher investment risk.
• Pay income tax and want to reduce their tax bill.
• Want to support innovative UK businesses.
• Can afford to lock money away for several years.

They’re not usually considered suitable for first-time and novice investors.

The tax benefits are generous because the investments themselves are considered risky.

Why?

• Many young businesses fail.
• Unlike investing in a large company listed on the stock market, some EIS and SEIS companies may never actually make a profit.
• In some cases, you could lose some or even all of your investment.

That is why it’s important to think of the tax relief as a bonus rather than the main reason for investing.

Always ask yourself whether you’d be happy investing in the business even without the tax benefits.

There are annual limits on how much you can invest while still qualifying for tax relief.

Currently:

SEIS

• Up to £200,000 per tax year.

EIS

• Up to £1 million per tax year.
• This increases to £2 million if at least £1 million is invested in knowledge-intensive companies*.

You don’t have to invest anywhere near these limits to benefit from the schemes.

* A knowledge-intensive company is a business that spends a significant amount of time and money developing new ideas, products or technology through research and innovation.

These companies are often found in industries such as:

• Biotechnology
• Pharmaceuticals
• Artificial intelligence (AI)
• Software development
• Medical technology (MedTech)
• Clean energy
• Advanced engineering

Because these businesses often take many years to become profitable, the Government gives them additional support through the Enterprise Investment Scheme (EIS).

Yes.

To keep the income tax relief, you’ll normally need to hold the investment for at least three years.

Selling earlier could mean some or all of the tax relief has to be repaid.

No.

While the tax benefits can be extremely attractive, these investments should usually only form a small part of a well-diversified portfolio.
Before considering EIS or SEIS, many people should first make the most of:

• Workplace pension contributions
• Stocks and Shares ISAs
• Cash ISAs
• Emergency savings

Only once these foundations are in place does it usually make sense to consider higher-risk tax-efficient investments.

Enterprise Investment Scheme (EIS): A government scheme offering tax relief to people who invest in qualifying small UK companies.

Seed Enterprise Investment Scheme (SEIS): Similar to EIS, but designed for even earlier-stage businesses and offering higher income tax relief.

Income tax relief: A reduction in the amount of income tax you pay because you’ve made a qualifying investment.

Capital Gains Tax (CGT): A tax paid on the profit you make when you sell certain investments or assets.

Diversification: Spreading your investments across different assets to reduce risk.