Everything you need to know about EIS and SEIS

Looking to back the next big thing before it's a big thing – and get the taxman to cheer you on? EIS and SEIS might sound like alphabet soup, but decoding them could mean big rewards (or big losses – most startups don't make it past year three).

Before we begin: This guide's packed with detail and well worth a proper read. Click 'save this page' above and we'll send it to your inbox, so you can come back to it whenever you like.

What they are

The Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) help small British companies raise money. In return, investors get tax reliefs.

EIS is for businesses that are already trading and looking to grow. These are the kind of companies that are growing steadily – maybe a handful of staff, a bit of income rolling in – but still far from stock-market territory. With EIS, they can raise up to £5 million a year by issuing new shares to investors.

Over its lifetime, it can raise up to £12 million in total. Investors who buy in get a range of tax perks. The risk is high – but the government softens the blow with reliefs.

SEIS is for companies at the very beginning (the S is for "seed", meaning very early stage). These are tiny startups – just launched, maybe no revenue yet, maybe just a few people. They can raise up to £250,000 in total ever under SEIS.

Because the risk is higher, the income tax relief is more generous – 50%, compared to 30% under EIS.

To qualify for SEIS, a company must be less than three years old. A common path is to use SEIS for the first round of funding, then shift to EIS later – assuming the business grows into it like a hermit crab moving into a roomier shell, rather than getting swept away first.

In short:

• SEIS helps brand-new startups raise early funding.
• EIS helps slightly bigger businesses scale up.

How they work (investor's perspective)

Investing through EIS or SEIS isn't as tangled as it sounds, but there are rules – and a few hoops to jump through. Here's how it works from the investor's side:

1) Find a qualifying company

Start by identifying a business that qualifies – or intends to qualify – for EIS or SEIS. Many startups advertise their eligibility. Some get advance assurance from HMRC, which is a formal indication that the investment should meet the scheme conditions. That gives you peace of mind that the tax relief should be valid.

You must invest in new ordinary shares – basically, plain old vanilla shares created for this funding round. Not second-hand shares, not preference shares. The money must go straight to the company, which must be based in the UK (or have a UK permanent establishment) and carry out a qualifying trade. You don't have to check these details yourself; the company takes care of meeting the rules.

2) Make the investment

You buy the new shares with your own money. That money must genuinely be at risk. You can't use a loan secured against the shares; you can't have a pre-arranged exit, or any kind of protection that would shield you from loss.

The company must use the money for business purposes – expansion, R&D, hiring – not to repay old debts or buy other businesses or commission a life-size bronze statue of the founder's dog.

To spread the risk, many investors back several startups at once.

3) Hold for three years

To keep the tax perks, you have to stay invested for at least three years. The clock starts from the day you invest – or from the day the company starts trading, if that's later.

Sell or gift the shares before that, and your tax relief will vanish like a teenager who wanders off alone in the first act of a slasher movie.

The company also needs to stick to the rules for the full three years. It can't suddenly pivot to a type of business that isn't allowed under the scheme – like property development or financial services. It also can't go public or merge into something that wouldn't qualify. If it does, your tax relief could be withdrawn.

After three years, though, the company can float or grow or pivot however it pleases without your tax perks taking an unfortuitous knife to the back.

4) Claim your tax relief

The company must apply to HMRC using a compliance statement (form EIS1 or SEIS1). Once HMRC approves the investment, they issue a compliance certificate (form EIS3 or SEIS3) with the details you need to claim your relief.

You claim the relief either through your Self Assessment return or by submitting the form directly to HMRC. There's also an option to carry it back to the previous tax year, which can help if you didn't have enough tax to offset this year.

5) Enjoy the benefits – and stay onside

If the company does well, any profit you make when you sell the shares is exempt from Capital Gains Tax – as long as you held them for the minimum three years. If things go badly, loss relief can soften the blow. You'll see how both work in the next section.

Once you've hit the three-year mark, your core tax perks are locked in. You don't have to sell right away – hold the shares for four years or forty, the relief still applies.

Also, if you're still holding the shares when you die, and you've owned them for at least two years, they may qualify for Inheritance Tax (IHT) relief under Business Property Relief. That's the final reward for stalwart investors who never stopped believing – and for those who completely forgot they owned the shares in the first place.

If you want to learn more about Business Property Relief, we explain it in full detail in our guide to wealth protection strategies for high net-worth people.

Tax reliefs

Let's be honest: this is why most people care about EIS and SEIS. The actual investments are like clowns at a circus – unsettling, occasionally nightmarish; the tax perks are the popcorn and fairground lights that make it all feel right.

In this section, we'll talk through the core tax benefits one by one, using plain examples and round numbers to keep things simple.

Don't worry: there are no trick questions, no HMRC jump-scares, and no sudden appearances from a financial advisor who looks suspiciously like your uncle.

Tax Relief	EIS	SEIS
Income tax relief	30% of your investment back. Up to £1 million per year, or £2 million for knowledge-intensive companies.	50% of your investment back. Up to £200,000 per year.
Capital Gains on exit	No CGT on profits, if you claimed income tax relief and held shares for 3+ years.	Same: no CGT on profits if conditions are met.
CGT relief on other gains	Defers CGT on gains from other assets if reinvested into EIS shares. No upper limit.	Deletes 50% of a reinvested gain – up to £100,000 per year.
Loss relief	Offset losses (after income tax relief) against income or gains. Reduces risk on failures.	Same approach – less pain if it all goes belly up.
Inheritance Tax relief	Shares can be IHT-free after 2 years if still unlisted and trading at time of death.	Same – can pass to heirs tax-free if you meet the conditions.

Income tax relief

This is the headline perk. Put money into an EIS or SEIS company, and you can knock a chunk off your income tax bill.

• EIS gives you 30% back. Invest £10,000 and you could knock £3,000 off your income tax bill. You can claim relief on up to £1 million a year – or £2 million if you're backing a "knowledge-intensive" company, which usually means something R&D heavy. All told, that translates to a maximum income tax reduction of £300,000 or £600,000, depending on the company.
• SEIS gives you 50% back. Invest £10,000, save £5,000. You can claim relief on up to £200,000 per tax year – so the maximum income tax saving is £100,000.

You can claim the relief for the tax year in which you made the investment. But you can carry it back to the previous tax year if you prefer. This is useful if you had a bigger tax bill the year before or didn't have enough income the year you made the investment to use all the relief.

You can't carry it forward, and you can't reduce your tax bill below zero.

Dividends aren't covered. If the company pays any (which, let's face it, is about as likely as that old lottery ticket you found in your jeans being the winner), consider yourself surprised. In early-stage startups like these, it's usually a growth play, not an income one – which brings us nicely onto how capital gains are taxed.

Capital gains tax (CGT) benefits

If things go well and you sell your shares for a profit, EIS and SEIS can help you keep more of it.

There are two main CGT perks:

1) No CGT on gains from the investment itself

This is the most straightforward benefit. If you received income tax relief on your investment and held the shares for at least three years, you won't pay any CGT when you sell – no matter how big the gain.

For example, let's say you put £10,000 into an EIS-qualifying company. A few years later, the company succeeds and your shares are worth £20,000. Your £10,000 profit is completely tax-free. That's up to £2,400 in CGT saved for a higher-rate taxpayer (24% on gains above the £3,000 annual allowance).

This applies whether you're in EIS or SEIS – as long as the initial conditions were met and the relief wasn't withdrawn.

2) CGT relief on gains from other investments

EIS and SEIS handle this part differently:

• EIS lets you defer CGT from the sale of other assets. Let's say you sold a second home and made a £50,000 gain, triggering a hefty tax bill. If you reinvest that £50,000 into EIS shares within three years after (or one year before) the sale, you can pause the tax bill. It's not wiped out – only postponed until you sell the EIS shares. Hold those shares until death, though, and the tax bill may vanish entirely. There's no limit to the amount of gains you can defer through EIS.
• SEIS gives you reinvestment relief. This doesn't just postpone tax – it cuts it. If you reinvest a gain into SEIS shares, half of that gain becomes tax-free. For example, you sell shares elsewhere and make a £10,000 gain. You reinvest £10,000 into SEIS and claim the relief. Now, only £5,000 of your original gain is taxable. The rest has done a Houdini – vanished without a trace. Under current rules, you can exempt up to £100,000 of gains per tax year this way (that's 50% of the £200,000 SEIS limit).

Here's a summary short enough to go on the back of a postage stamp: EIS delays tax. SEIS deletes it.

And (OK, you'll need a bigger stamp for this part) both schemes protect the growth on your actual investment from CGT completely, as long as you stick to the rules.

Loss relief

It's not being a Debbie Downer to think about failure; with startup investing, it's a real possibility.

Of course, this is the very reason why the government offers tax breaks in the first place. It's like the dog at the pound that bites one in five people who pet it – still offered to a good home, no charge, if you're brave enough to take it.

If the company goes under and your shares end up worthless, you can claim back part of the loss against your tax bill. It works like this:

Suppose you invest £10,000 in an EIS or SEIS company. You get either £3,000 (EIS) or £5,000 (SEIS) in income tax relief straight away. That leaves a remaining loss of £7,000 or £5,000 if things go badly.

You can claim relief on that remaining loss against your income – either in the same tax year or the one before. It's like telling HMRC: "That wasn't an investment; it was negative income." And they'll treat it as such.

Here's how it would look in practice:

Pretend you invest £10,000 in an EIS. The company fails. You already got £3,000 off your income tax. The £7,000 loss can be relieved against your income for the year you disposed of the shares – or the year before. If you're in the 45% additional rate tax band, that's £3,150 back (£7,000 x 0.45). Total relief: £6,150. Net loss: £3,850.

If you're on the 40% rate, it's £2,800 back. On the 20% rate, £1,400.

The same applies to SEIS: if you lose a £10,000 SEIS investment, you'd already have £5,000 back. You can claim relief on the other £5,000. That's another £2,000 if you're a 40% taxpayer – adding up to a total relief of £7,000 on a £10,000 loss.

You can also choose to offset the loss against capital gains instead of income, but since income tax rates are usually higher than CGT rates, most people go the income route.

In short: if you lose your shirt on the investment, HMRC will see that you have some rags to cover yourself up with. You still lose money – but less. Instead of the full ten grand going down the toilet, you might only lose five, or four. Or a psychologically manageable three-point-something.

Inheritance tax relief (a.k.a. the Grim Reaper loophole)

This bit kicks in when you die, which – fingers crossed – won't be during your tax planning window, but it does happen.

If you own EIS or SEIS shares and you've held onto them for at least two years, and you still have them when you shuffle off this mortal coil, they can sometimes be passed on with zero IHT.

That's because HMRC considers these shares to be business assets. And business assets, for reasons best left in the depths of tax law, get treated with a sort of reverence once you're dead.

Let's say you've built up £100,000 in EIS shares. If you leave them in your will and they don't qualify for relief, they'd count towards your estate for IHT. If you've already used up your allowances – such as the £325,000 nil-rate band – that £100k could face a 40% tax bill. But if you've met the Business Relief conditions, the full value can pass to your heirs tax-free.

Not every company qualifies, but nearly all EIS/SEIS-eligible ones do. There are conditions: the company must be unlisted and actively trading – not a property or investment firm. But those kinds of businesses wouldn't qualify for EIS or SEIS in the first place.

Here's the smallprint where HMRC tries to waggle out of that deal:

• You must have held the shares for at least two years.
• You still need to be holding them at the time of death.
• The company must still be unlisted and actively trading; if it floats or gets bought by a listed firm before then, you could lose the IHT relief.
• Your executors need to claim the relief when applying for probate.

So, while you wouldn't invest in startups just to get out of IHT, this can be a powerful side benefit – especially if you're already thinking about passing down your wealth.

Before you get carried away with all these tax perks, make sure you and the company actually qualify.

Eligibility rules

Not every company can slap "EIS/SEIS" on its pitch deck and hand out tax perks like fairy cakes at a school fête. There are strict criteria – for both companies and investors. Here's how it works on the company side.

What companies qualify?

It must be a real, trading UK business. The company needs a UK base (a permanent establishment) and must be carrying on a qualifying trade. Most are fine – think tech, manufacturing, services, R&D – but certain industries are banned. No land dealing, no banking, no insurance, no law firms, no energy generators, no landlords, no nursing homes, no hotels.

Basically, if it's asset-heavy or already tax-efficient, it's off the list. A little bit of non-qualifying activity is allowed – as long as it's less than 20% of what the company does.

• It must be small – and young. For EIS, the company must have no more than £15 million in gross assets before the investment, and no more than £16 million immediately after. Staff-wise, it's capped at 250 full-time equivalent employees. It also can't be long in the tooth: unless it's a "knowledge-intensive" company, it must be within seven years of its first commercial sale.

• Knowledge-intensive companies – think boffins in labcoats doing R&D – get more slack: they can be up to ten years, have up to 500 staff, and assets up to £20 million. You can't rush science, after all.

• SEIS is stricter. The company must be under three years old, have fewer than 25 employees, and own less than £350,000 in assets at the time of the investment. It can't have raised EIS or VCT money before – SEIS is a first-bite scheme. You only get one go, and the most a company can raise under SEIS is £250,000 total.

• It must be private. The company can't be listed on a recognised stock exchange when the shares are issued. AIM doesn't count as "recognised" for this purpose, so AIM-listed companies can still qualify for EIS. But if it's on the FTSE main market – or any other main stock exchange worldwide – it's out.

• The company shouldn't be lining up an IPO while doing an EIS or SEIS round. The scheme's designed for private businesses. Going public later is fine – but if the shares become listed on a recognised exchange within three years, you could lose your tax breaks. And if HMRC thinks the IP was already in the works at the time of the investment, the reliefs might never apply in the first place.

• No big backers or sneaky corporate structures. The company must be independent. It can't be owned 50% by another company. It can't be part of a partnership. It generally can't own other companies either – except for qualifying subsidiaries doing something relevant to the main trade.

• The money must be used for growth – and used promptly. EIS funds should be deployed within two years; SEIS gives you up to three. That means expanding operations, hiring staff, launching a new product, buying kit, or doing R&D. Not for buying another company. Not for buying someone else's shares. Not for sitting in a savings account, and not, under any circumstances, for shovelling the money back to investors in a way that avoids risk. The scheme has a "risk-to-capital" condition: the money must genuinely be at risk and used to grow the business, without protecting the investor's downside.

Advance assurance: not mandatory, but useful. When raising under EIS or SEIS, most companies ask HMRC for advance assurance. It's not required, but it tells potential investors that HMRC has looked at the plan and, on paper, it qualifies. After the investment is made and the money is spent properly, the company submits a compliance statement to confirm everything's above board – and only then do investors get their tax certificates.

TL;DR:

EIS companies: small (under £15m in assets, 250 employees), usually under seven years old, trading in the UK, not listed, raising money to grow.

SEIS companies: tiny (under £350k in assets, 25 employees), under three years old, never raised EIS or VCT before, raising seed funding.

Eligibility rule	EIS	SEIS
Trading status	Must be a UK trading company with a permanent establishment. Certain sectors excluded (e.g. finance, law, energy, property, hotels, nursing homes).	Same as EIS – must be UK-based and carrying on a qualifying trade. Same sector exclusions apply.
Company age	Usually under 7 years from first commercial sale. Up to 10 years for "knowledge-intensive" companies.	Must be under 3 years old.
Asset limit	£15 million max before investment; £16 million after. Up to £20 million for "knowledge-intensive" companies.	£350,000 max at the time of investment.
Staff limit	Up to 250 employees. Up to 500 for "knowledge-intensive" companies.	Fewer than 25 employees.
Previous funding	Can follow SEIS funding, or be standalone.	Must not have previously received EIS or VCT funding. First-bite only.
Listing status	Not listed on a recognised stock exchange. AIM is allowed. Must not be planning imminent IPO.	Same as EIS – must remain private during the raise. Going public later is OK if outside 3 years.
Corporate structure	Must be independent. Cannot be 50%+ owned by another company. No partnerships. Subsidiaries allowed only if directly supporting the trade.	Same as EIS – must be independent with no complex corporate ownership.
Use of funds	Must be used within 2 years for genuine business growth (e.g. hiring, R&D, equipment, marketing). No capital preservation allowed.	Same as EIS, but funds must be used within 3 years.
Advance assurance	Optional but recommended. Shows HMRC preliminarily agrees the company qualifies. Final reliefs depend on post-investment compliance.	Same process as EIS. Assurance helps reassure investors.

Who can claim the reliefs? (Investor eligibility)

EIS and SEIS are for real humans taking real risks. Not companies. Not corporate tax dodgers. Just you, your wallet, and your slightly trembling hand clicking "invest".

But before you go looking for your wallet and tax certificates, check you are on the right side of the following rules:

No connections allowed

HMRC doesn't want insiders claiming relief. If you're connected to the company, you're out.

That includes:

• Employees: For EIS, you can't have been on the payroll in the two years before the investment or the three years after. For SEIS, the bar's even higher – if you've ever been employed by the company, you're disqualified.
• Directors: For SEIS, directors are fine, even paid ones. For EIS, you can be an unpaid director (a "business angel"), but the second you start taking a salary, the relief is at risk. Unless that payment is something tiny and permitted – like reimbursed train tickets.
• Significant shareholders: You won't get EIS or SEIS relief if you (together with your associates) own more than 30% of the company. That includes voting rights, shares, or rights to assets on winding up. So even if you only own 5%, if your spouse or parent owns 26%, you're considered a "connected person" – and you're out. Associates, for this rule, include your spouse or civil partner, parents, grandparents, children, grandchildren, business partners, and any trusts you're involved in. Strangely, siblings don't count – so investing in your sister's alpaca farm startup is fine.

Also, no funny business. If you and a mate agree to invest in each other's companies to "get the tax perks", HMRC will see through it. They've read that playbook.

Must be your own money – really your own

You need to buy the shares with your own cash. Not a company loan. Not a side deal. And definitely not a handshake agreement that they'll buy you out in three years no matter what. It's got to be a real investment, wherein if the company fails, you lose money.

Already a shareholder? Tread carefully

If you already hold shares in the company, new investments might not qualify – unless those shares were founder shares or part of a previous EIS/SEIS round. You can't just top up an existing holding and expect a reward. This is complicated territory where getting advice is strongly recommended.

You need a UK tax bill to reduce

"OK, Captain Obvious."

But for the sake of completeness: if you don't owe any UK tax (say, if you're a non-resident with no UK income or gains), then there's nothing for EIS or SEIS to reduce. Might be time to close this tab and fire up a nice cat video instead.

No minimum investment

There's no floor. You could invest £500 and claim £150 back under EIS. Platforms and funds may have minimums of their own, but the law doesn't care how miniature your investment is.

Rule	EIS	SEIS
Type of investor	Must be an individual (not a company)	Must be an individual (not a company)
Employee status	Disqualified if employed by the company within 2 years before or 3 years after investment	Disqualified if ever employed by the company
Director status	Allowed if unpaid (a “business angel”); paid roles usually disqualify unless minimal (e.g. expenses)	Allowed even if paid
Big shareholder (30% rule)	Disqualified if you and your associates own more than 30% of the company	Same as EIS
Who counts as an associate?	Spouse/civil partner, parents, grandparents, children, grandchildren, business partners, certain trusts. Siblings don’t count.	Same as EIS
Circular/reciprocal investing	Disqualified if HMRC thinks there’s a scheme to invest in each other’s companies for tax perks	Same as EIS
Own cash, genuinely at risk	Must invest real personal money, with no guarantees or exit arrangements	Same as EIS
Existing shareholder status	No relief if you already hold non-EIS/SEIS shares (unless founder shares or previous EIS/SEIS)	Same as EIS
UK tax liability	Must owe UK tax to benefit from relief	Same as EIS
Minimum investment	No legal minimum	No legal minimum

Another quick reality check...

You could very easily lose all of your money.

We've said it before, we'll say it again, and now we're saying it louder for those at the back: investing in EIS- and SEIS-eligible companies is very, very risky. That's why the tax breaks exist – to compensate you for backing something that could go up in smoke.

20% of startups fail within five years, and a good half end up going nowhere fast:

Source: Beauhurst startup fail, scale & exit rates in the UK

So definitely do not invest money you can't afford to lose, don't expect a quick exit, and don't assume tax relief is guaranteed – if you don't get personalised advice before pulling the trigger, you could easily fall into a loophole without realising it.

Still here? Brave soul. Let's crack on then.

How to invest in EIS and SEIS

Time to step down from the lofty tax talk and get into the real-world mechanics of actually putting your money into an EIS- or SEIS-eligible company (or fund).

You can't just pop onto your ISA platform and click "Buy". These aren't listed shares – they're private investments. That means there are a few main routes in, each with their own quirks:

1) Direct investment (angel investing style)

Got a friend with a startup? Part of an angel network? Loitering at founder meetups with a business card and a hopeful smile?

You can invest directly into a company's funding round – just make sure the company either:

• Already has HMRC Advance Assurance, or
• Is definitely going to qualify.

Ask outright: "Is this EIS/SEIS eligible? Have you got advance assurance?"

If they look confused, run away. Fast.

Otherwise, you'll agree an amount, sign some paperwork (typically a subscription agreement), transfer the funds, and – fingers crossed – get your EIS3 or SEIS3 certificate a few months later to claim the tax relief.

Many angel investors build portfolios this way, often focusing on early-stage startups with high growth potential (and usually even higher failure potential). You'll need a bit of legal literacy – or a solicitor on speed dial.

2) Equity crowdfunding platforms

Platforms like Crowdcube and Seedrs have democratised EIS and SEIS. Fancy putting £10 into someone's dream of selling grow-your-own oyster mushroom kits? You can – and the taxman will subsidise your optimism.

How it works:

• Browse the platform, find companies labelled EIS or SEIS eligible.
• Invest your money (usually via a nominee structure).
• Wait a few months (sometimes even longer).
• Get emailed an EIS3/SEIS3 certificate.
• Claim your relief via Self Assessment or by submitting the EIS3/SEIS3 directly to HMRC using the appropriate claim form.

These platforms do the legwork and admin for you – like share certificates and nominee structures. And you can spread a few grand across 10+ companies to hedge your bets. However, you're still responsible for claiming the tax relief from HMRC yourself.

But don't let the slick UI fool you. These are incredibly risky investments, so do your due diligence and don't get sucked in by a shiny promo video.

3) EIS/SEIS funds and portfolio services

Want to outsource the hassle but still get exposure? Welcome to the world of EIS funds.

Here's how it works:

• You invest, say, £50,000 into an EIS fund.
• A manager spreads that across five to 10 companies for you
• You get the shares (often via a nominee).
• That fund handles the admin and sends you the paperwork – one EIS3 certificate per company, but often posted together.

Some even offer "approved knowledge-intensive" fund status, which lets you treat the whole investment as if it happened on a single date – convenient for tax planning.

Look out for:

• Fees (these are usually upfront and for performance)
• Deployment time (you don't get tax relief until the money's invested)
• The manager's track record

There are also SEIS funds for those who like even earlier-stage, higher-risk punts.

4) Through a financial adviser or wealth manager

If you've got an adviser, they might know a few EIS funds or direct deals. They might be able to help:

• Check eligibility.
• Handle the forms.
• Suggest allocation size.
• Make sure you're not doing anything really daft.

Whichever route you go, it's rarely a bad idea to run it past a registered financial adviser – especially if you're investing serious money or juggling other tax planning.

Bottom line

EIS and SEIS are government schemes that reward you for taking a punt on small British businesses – the kind still figuring things out, often with more ambition than income.

In exchange for tying up your money and embracing the risk (and it really is risk – most won't make it), you get upfront income tax relief, no tax on profits if it goes well, and a softer landing if it doesn't.

Stick to the rules, hold for three years, and keep HMRC sweet – and you might just come out ahead. Or, more likely, slightly less behind.

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