EIS and SEIS – a guide for investors
Enterprise Investment Scheme and Seed Enterprise Investment Scheme
EIS encourages investment in smaller, higher-risk trading companies. This can be particularly attractive to entrepreneurs who are looking to secure investments in their own businesses or to invest in and apply their experience and expertise to other ventures.
SEIS is a derivative of EIS and its aim is to attract seed investment in early-stage companies. By their nature, these companies are generally higher-risk investments and so the tax reliefs for SEIS investment are more generous. We are often asked about SEIS and EIS by both companies looking to apply for status and from investors attracted by the tax breaks. Be aware that tax relief will only be given where there is a genuine risk to investors’ capital, and specifically excluded are companies and arrangements designed for capital preservation.
What you can invest in
The investment must be shares in a qualifying company. This means an unquoted trading company with a permanent UK establishment carrying out a qualifying trade. There are certain restrictions on the size of the company depending on whether you are investing under SEIS or EIS.
- EIS must have fewer than 250 full-time employees, less than £30 million in assets before the investment, and no more than £35 million afterwards. The company must be less than seven years old. The company can raise a maximum of £10 million of capital from EIS investment each year, with a total maximum investment totalling £24 million.
- Knowledge-intensive EIS companies can have up to 500 full-time employees, less than £30 million in assets before the investment, and no more than £35 million afterwards. The company must be less than ten years old. The company can raise a maximum of £20 million of capital from EIS investment each year, with a total maximum investment totalling £40 million.
- SEIS is much smaller, with fewer than 25 employees and less than £350,000 gross assets. With SEIS, the company must also be less than three years old. The company can raise a maximum of £250,000 in capital from SEIS investment.
What companies are excluded
There are certain trades that are excluded, for example, money-lending, property development and, more recently, companies involved in energy generation. We advise seeking advance assurance from HMRC before an application for EIS status is made to ensure investments will qualify.
Time limit from investment to trade commencement
Those companies that have taken EIS/SEIS monies need to remain aware of the rules linking the permitted timing lag between investment and trade commencement, as otherwise investors will not gain the tax reliefs they were expecting at the time of investment.
How much can you invest?
- EIS, it is possible to invest up to £1 million a tax year and obtain tax relief as follows. This is doubled to £2 million a tax year as long as amounts over the initial £1 million limit are invested only in knowledge-intensive companies.
- SEIS, the limit is £200,000 a tax year. Where the limit is not used for the previous year, this limit can be doubled, provided a claim to carry back some of the investment to the previous year is made.
Income tax relief you can claim
- On an investment under EIS, income tax relief is at 30% of the investment as a credit against your tax liability for the year in which the shares are issued (or the previous year if a claim is made). The income tax relief will be clawed back if the shares are disposed of within three years.
- Under SEIS, the tax credit is 50% of the investment made. Again, the income tax relief will be clawed back if the shares are disposed of within three years.
Tax due on the sale of the share
Provided the shares are held for three years or more, in both cases, any gain on the shares themselves is free from tax. An added benefit for both EIS and SEIS is the opportunity to defer or extinguish gains on other assets.
- EIS: the tax on the gain is deferred until the shares are eventually sold.
- SEIS: 50% of the amount invested can be used to extinguish a gain on an asset realised in the same tax year.
In either case, the gain will come back into charge if the shares are sold within three years of issue.
Restrictions
There are restrictions to the relief where you are connected to the company you invest in. This is usually where you or your associates own more than 30% of the company or are a paid director. However, often companies will look to secure ‘business angel’ investors.
A business angel will often be a successful entrepreneur who looks for opportunities to invest money into a business, usually offering expertise to help the business grow. As part of this, the angel investor is often appointed as a director of the company, enabling them to be involved in the decision-making process and to better monitor their investment.
HMRC is prepared to accept that relief will still be available in these cases, provided the level of remuneration paid is ‘reasonable’ in relation to their services to the company. Care does need to be taken with additional issues of shares.
Claiming for losses
If the company fails or the shares are sold at a loss, it is possible to claim the loss against your income for income tax purposes. The loss is adjusted for any income tax relief already claimed.
Other investment benefits
As these investments are in trading companies, the shares may qualify as business property once they have been held for two years, leading to 50% or 100% relief from Inheritance tax under Business Relief. More information can be found in our Business Relief 2026 insight. It can be a useful investment for estate planning.
As with all tax issues, circumstances will differ in each case, and we have just covered an outline of the issues here. If you are looking to invest or to secure EIS or SEIS status for your business, our team can help.
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