EIS, SEIS and VCT - tax efficient investments – a guide for investors

The Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trust scheme (VCT) offer investors a range of tax incentives designed to help unquoted companies attract equity investment.

The schemes target distinct types of companies and offer incentives across income, capital gains and inheritance tax to reflect the risk profile of the companies. This is an article to help investors, and potential investors, understand the potential tax reliefs available and how to access them.
 

Outline of tax reliefs

Income tax reliefs

SEIS provides the highest rate of income tax relief at 50%, but only up to a maximum investment of £200,000 per year. EIS provides income tax relief at 30% up to a maximum investment of £1 million per year but this may be increased to £2 million per year if the excess over £1 million is invested in 'knowledge intensive companies' (KIC). An investment into a VCT company provides 30% income tax relief up to a maximum investment of £200,000 per year.

For both EIS and SEIS, this relief can be claimed either in the tax year the investment is made or in the previous year. There is no carry back available on a VCT investment.

In all cases, the tax relief is given as a 'tax reducer', meaning that it is limited by the amount of tax paid by the investor – it can reduce the investor’s tax liability to nil but no more. In addition, if the shares are disposed of or the company ceases to qualify, within the three or five year holding period, the income tax relief will be clawed back.
 

Income tax	EIS	SEIS	VCT
Income tax relief	30%	50%	30%
Maximum investment per year	£1,000,000	£200,000	£200,000
Knowledge Intensive companies	£2,000,000	n/a	n/a
Carry back available?	Yes	Yes	No
Holding period	3 years	3 years	5 years
Tax-free dividends	No	No	Yes
Relief for losses against income	Yes	Yes	No

 

CGT reliefs

If an investor holds EIS or SEIS shares for three years any capital gain realised on the disposal of the shares will be capital gains tax (CGT) free. For EIS and SEIS, it is essential for income tax relief to have been claimed on subscription, and not withdrawn, for the CGT exemption to be available on disposal. EIS and SEIS losses can be claimed against income or gains.

Capital gains on VCT shares are always exempt from CGT if shares were acquired for bona fide commercial purposes, and not as part of a scheme/arrangement where the main purpose or one of the main purposes was to avoid tax. However, there is no relief for VCT losses against either income tax or CGT.

EIS investors with capital gains made up to three years before or one year after the EIS subscription was made, can claim ‘deferral relief’ against those gains at up to, based on 2025/26 tax rates, 24% for higher rates tax payers on the majority of gains, and 32% on carried interest.

Deferred gains become taxable again on certain events, such as a sale of the EIS shares or the cessation of UK tax residence when leaving the UK, and are liable to the prevailing rate of CGT at that time. The £1 million annual investment limit does not apply for CGT deferral relief purposes, although EIS income tax relief will be restricted to a maximum of £1 million per year.

SEIS investors with capital gains can claim ‘reinvestment relief’ to exempt from CGT the lower of 50% of the gain or 50% of the SEIS subscription, meaning that a gain of up to £100,000 could be exempted entirely from CGT, rather than simply deferred as is the case for EIS. The gain to be exempted needs to fall in the same year as the SEIS income tax relief is claimed.
 

Capital Gains Tax	EIS	SEIS	VCT
Exemption on disposal	Yes	Yes	Yes
Deferral of other gains	Yes	No	No
Reinvestment relief	No	Yes	No
Relief for losses against gains	Yes	Yes	No

 

Loss Relief

If a loss is made on the disposal of qualifying EIS / SEIS shares at any time, the loss, net of any income tax relief claimed on subscription, may be claimed against either current year or future capital gains, or, by election, against income of the current or previous tax year. For a 45% taxpayer, assuming that no value was received for the shares, the loss would be calculated as follows:
 

EIS cash subscription	£100,000
Income tax relief at 30% on subscription	(£30,000)
Capital loss	£70,000
Income tax loss relief at 45%	(£31,500)
Loss net of tax relief	£38,500

 

Inheritance tax exemption

The 2024 Autumn Budget announced significant changes to the Inheritance Tax (IHT) reliefs available for assets qualifying for Business Relief (BR) and Agricultural Relief (AR). The changes are expected to come into effect from 6 April 2026. The qualifying conditions themselves have not changed but the amount of relief will be capped. The first £1 million of qualifying assets per individual will be exempt from IHT and the excess will attract 50% relief, in effect producing a 20% IHT rate. The £1m will be shared across assets qualifying for BR and AR on pro-rata basis, and will not be transferable between spouses if unused. Read more about IHT Business Relief.

Provided a shareholder has owned shares in a qualifying unquoted trading company for at least two years, and certain other conditions are met at the time of transfer, BR of 100% should be available, which reduces the IHT liability on death to nil. From April 2026, this will be subject to the new £1 million cap, with any value in excess taxed at the effective rate of 20%.

There is no limit on the amount a shareholder can invest in EIS and SEIS companies for IHT relief purposes, but relief will be subject to the cap of £1 million from April 2026.

There is no IHT relief for VCT shares.

Qualifying investors

To claim relief an investor must meet certain criteria, which differ for each scheme.
 

Investor criteria	EIS	SEIS	VCT
Employees can invest	No	No	Yes
Directors can invest	No	Yes	Yes
Directors can invest only when complex Business Angel rules apply	Yes	N/A	N/A
Investor’s maximum holding (together with their ‘associates’ (business partners, spouses, lineal relatives, but not siblings))	30% (or 100% for CGT deferral relief only)	30%	Small % of VCT
Existing shareholders can invest	No, except for subscriber shares	Yes	Yes

 

The investment process

Before investing in a company offering EIS, SEIS or VCT reliefs, investors should consult their tax and financial advisers. Additionally, investors should ask to see 'advance assurance' letter from HMRC. Advance Assurance does not guarantee that these tax reliefs will be available, but it may provide a degree of comfort.

Once approved by HMRC, investors should receive a Certificate within a couple of months. The Certificate is needed before a claim for any of the tax reliefs can be made and there can often be a significant delay between the subscription being made and the certificate received.
 

Qualifying unquoted trading company

There are a number of conditions that a company must fulfil in order to qualify. You can read more about qualifying conditions for EIS and VCT companies or find out more about qualifying conditions for SEIS companies.
 

How we can help with tax efficient investment

If you would like more information about the EIS, the SEIS or VCT or other issues relating to equity investment please contact your usual BDO contact or David Brooks, Tax Partner, would be delighted to speak to you.