What are the tax benefits for investors of the government’s EIS and SEIS schemes?

By Jamie Bird, Tax Partner and Emily Gahagen, Tax group at Knill James

The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are two of HMRC's venture capital initiatives designed to encourage investment in start-ups and small companies by providing incentives for investors. This blog focuses on the tax reliefs for investors. You can read all about the benefits of these schemes for companies in our Tax Manager Zelie Byrne's blog here.

There are a number of reliefs an investor in an EIS or SEIS can benefit from:

  1. Income tax relief

The rate of tax relief for subscription of shares is:

  • 30% relief on EIS company shares
  • 50% relief on SEIS company shares

For example, a £1,000 investment in a qualifying EIS or SEIS company would reduce your Income Tax bill by £300 or £500 respectively.

  1. Capital Gains exemption

Where EIS or SEIS shares are sold at a gain, they are exempt from Capital Gains Tax (CGT) if two conditions are satisfied:

  • Shares must be held for at least three years before being sold.
  • The investor must have obtained income tax relief on the subscription.

Where EIS or SEIS shares are sold at a loss, the loss is always allowable, regardless of when the shares are sold. The loss and can be offset against income (subject to restrictions) which could produce tax relief at a rate of up to 45%.

  1. Capital Gains Tax deferral relief

CGT deferral relief is available when an individual sells an asset and reinvests the proceeds into EIS shares. The gain on the original disposal is frozen until the shares are sold, when the gain will then come back into charge. The amount of deferral relief claimed can be chosen to take advantage of any unused annual exempt amount.

SEIS reinvestment relief works slightly differently. In this case the relief is only available if you dispose of an asset in the same tax year as you reinvest the sale proceeds and claim SEIS income tax relief. In this case, the gain is not deferred but instead is exempt at 50% of the available investment.

  1. Inheritance Tax (IHT)

EIS and SEIS shares often qualify for Business Property Relief as they are shares in an unquoted trading company. This means that they could get IHT relief of up to 100% if the shares have been held for at least 2 years and certain conditions are met at the time of transfer. 

Conditions

With such generous reliefs there are of course conditions which will need to be met by both the company (as explained in Zelie Byrne's blog here) and the investor.

If you wish to invest, key conditions which you and the target business must consider are:

  • The investor must be subscribing for new fully paid-up shares in the company.
  • An individual cannot claim relief on shares worth more than £1,000,000 in total each year in an EIS company and £200,000 in total each year in a SEIS company.
  • If the company is 'knowledge intensive,' the above limit increases to £2,000,000 in total each year for EIS companies.
  • Relief is only available on shares issued before 6 April 2025.
  • You cannot be an employee of the company you are investing in, although certain Directors will qualify.
  • You must not be connected with the company in the period beginning two years prior to the issue of the shares and ending three years after the issue.
  • You cannot have a substantial interest (more than 30%) in the company following the issue of new shares. 

Here to help

If you have made or are considering making an investment into a business which might qualify for EIS or SEIS reliefs, we're here to help. For advice or more information about investing in SEIS and EIS, please contact Jamie Bird, Tax Partner, on jamesb@knilljames.co.uk.

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