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 channel private investment into early-stage and growing businesses by offering a range of tax reliefs.

The schemes target distinct types of companies and offer incentives across income, capital gains and inheritance tax that reflect the risk profile of the companies.

This article explains the potential tax reliefs available and how to access them.

EIS, SEIS and VCT tax reliefs

The three schemes offer different reliefs with different qualifying conditions. SEIS targets the very earliest start-ups, offering 50% income tax relief to investors; EIS covers slightly larger, more established companies at 30% relief; and VCTs allow investors to back a diversified portfolio of small businesses through a listed trust, at 20% relief.

All three carry significant risk but are popular tools for UK investors seeking exposure to growing businesses while accessing available tax reliefs.

The qualifying limits for companies increased from April 2026, but income tax relief for VCTs was reduced on subscriptions from April 2026.

Income tax reliefs from April 2026

The rates of income tax relief provided by the EIS, SEIS and VCT schemes vary, as do the maximum investments and holding periods.

• 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 can increase to £2 million per year if the excess over £1 million is invested in 'knowledge intensive companies' (KIC).
• An investment into a VCT provides 20% income tax relief up to a maximum investment of £200,000 per year (reduced from 30% relief from April 2026).

Both EIS and SEIS reliefs can be claimed either in the tax year the investment is made or in the previous year. You cannot carry back VCT investment allowances.

These tax reliefs act as a 'tax reducer', meaning that it is limited by the amount of tax paid by the investor – it can reduce your tax liability to nil, but no more. In addition, if you dispose of the shares 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%	20% (reduced from 30% from April 2026)
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

 

Capital Gains Tax reliefs

If you hold EIS or SEIS shares for three years, any capital gain that you realise on the disposal of the shares should be free of capital gains tax (CGT). For EIS and SEIS, it is essential you claim income tax relief on subscription, and it is not withdrawn, for the CGT exemption to be available on disposal. EIS and SEIS losses can be claimed against income or capital gains.

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

EIS deferral relief

EIS investors with capital gains realised up to three years before or one year after the EIS subscription was made, can claim ‘deferral relief’ against those gains.

Deferred gains become taxable again on certain events - e.g. selling the EIS shares or ceasing to be UK tax resident - 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, but EIS income tax relief is restricted to a maximum of £1 million per year.

SEIS reinvestment relief

SEIS investors with capital gains can claim ‘reinvestment relief’, which exempts the lower of 50% of the gain or 50% of the SEIS subscription from CGT. This means 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 needs to fall in the same year as the SEIS income tax relief is claimed to be exempted.

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 you make a loss on the disposal of qualifying EIS / SEIS shares at any time, the loss, net of any income tax relief claimed on subscription, can be claimed against either your current year or future capital gains, or, by election, against your 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 Inheritance Tax (IHT) reliefs available for assets qualifying for Business Relief (BR) and Agricultural Relief (AR) will reduce from 6 April 2026. The qualifying conditions themselves have not changed, but the amount of relief has been capped. The first £2.5 million of qualifying assets per individual are exempt from IHT, and the excess now attracts 50% relief, in effect producing an effective IHT rate of 20%. The £2.5m is shared across assets qualifying for BR and AR on a pro-rata basis, and unused allowance is transferable between spouses.

If 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, up to the new £2.5 million cap, with any 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 is subject to the £2.5 million cap.

There is no IHT relief for VCT shares.

Qualifying investors

To claim relief, investors 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, you should consult your tax and financial advisers. Additionally, you should ask to see 'advance assurance' letter from HMRC. Advance Assurance does not act as a guarantee that these tax reliefs will be available to you, but it may provide a degree of comfort.

Once approved by HMRC, investors should receive a certificate from the company. You will need the certificate before you can claim any of the tax reliefs, and there can often be a significant delay between the subscription being made and receiving the certificate.

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.

If you would like more information about the EIS, the SEIS or VCT or other issues relating to equity investment please get in touch with the team, who will be happy to help. 

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