Gains on qualifying SEIS or EIS shares are exempt from capital gains tax if you hold them for at least three years and received income tax relief on them. That's the part most people mean when they talk about "the CGT exemption" - but it's only one of three ways the two schemes interact with capital gains, and the other two work in genuinely different ways.
The Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) are the government's two routes for channelling private capital into young UK companies. Income tax relief is the marquee benefit - 50% for SEIS, 30% for EIS - and it's what gets quoted in the pitch deck. The capital gains treatment tends to get a single bullet point. It deserves more, because the rules are not interchangeable and the language around them is loose enough to cause real confusion.
Three mechanisms sit under the same "CGT" heading. We'll take them one at a time.
Are gains on SEIS and EIS shares free of capital gains tax?
This is the disposal exemption, and it's the cleanest of the three. Sell your SEIS or EIS shares at a profit and that profit is free of capital gains tax - provided two things are true: you held the shares for at least three years, and you received income tax relief on them that was never withdrawn.
Both conditions are load-bearing. The three years run from the date the shares were issued (or from when the company began trading, if that's later). Sell a day early and the exemption falls away. And if you never claimed - or later lost - the income tax relief, the disposal isn't covered either. No relief, no exemption.
A point worth holding onto: the exemption applies to the growth in those specific shares. It is not a general get-out on your wider capital gains. A 20x on a seed cheque held for four years with relief intact escapes CGT entirely; a gain on your buy-to-let does not, and one has nothing to do with the other.
The exemption rewards the shares that grew. The reliefs help with a gain you made somewhere else.
How does SEIS reinvestment relief cut a gain in half?
Here the scheme reaches sideways, into a gain you made on something unrelated. SEIS reinvestment relief lets you take a chargeable gain - on a property, a share portfolio, a business sale - and exempt half of it by putting the proceeds into SEIS shares.
The exempt slice is 50% of the gain you reinvest, and it applies to up to £100,000 of SEIS investment in a tax year. Reinvest a £100,000 gain into qualifying SEIS shares and £50,000 of it drops out of charge permanently. This is true exemption, not a delay: the relieved portion is gone.
It rides alongside the rest of the SEIS package. The annual cap on SEIS investment that qualifies for income tax relief is £200,000, the income tax relief itself runs at 50%, and a claim can be carried back to the previous tax year. The reinvestment relief is a separate lever working on the capital gains side, but it sits within the same SEIS investment.
What does EIS deferral relief actually do?
EIS does the third thing, and the word that matters is deferral. Reinvest a chargeable gain into EIS shares and the tax on that gain is postponed rather than cancelled. The gain is parked. It comes back into charge later - typically when you sell the EIS shares, or on another trigger event the legislation sets out.
That's the structural difference between the two schemes on the capital gains side, and it trips people up constantly. SEIS reinvestment relief makes half a gain disappear. EIS deferral relief moves a whole gain down the road. One is a discount; the other is a timing shift.
Deferral can still be useful - pushing a gain into a later year, smoothing a one-off liability, buying time. But it is not the same as the exemption, and treating a deferred gain as a vanished one is how people get an unwelcome surprise three or four years on.
Layered on top, the EIS shares can themselves qualify for the disposal exemption described above - so a gain on the growth of the EIS shares can be CGT-free even while a separate, deferred gain reattaches when you sell. Two different gains, two different rules, same disposal.
What conditions decide how the gain is taxed?
Underneath all three mechanisms sit the same gatekeeping rules. The schemes are not self-service.
- Advance assurance. Companies typically secure HMRC advance assurance before the round, confirming the shares are expected to qualify.
- The certificate. After the investment, the company issues an SEIS3 or EIS3 certificate. You can't claim relief without it.
- The holding period. Three years, minimum, for both schemes. It governs the income tax relief and the CGT exemption alike.
- UK taxpayer status. The reliefs are designed for UK taxpayers; you generally need a tax liability to set them against.
Loss relief sits in the background of both schemes too. If the company fails and the shares are sold at a loss, the loss - net of income tax relief already taken - can generally be set against income or gains. That's part of why the asymmetry of early-stage bets is less brutal than the headline risk suggests. (It's also the one feature VCTs lack: venture capital trusts offer 20% income tax relief and tax-free dividends over a five-year hold, with no CGT on gains, but no loss relief.)
What about the company's own limits?
Your reliefs depend on the company qualifying, and the company rules have their own thresholds. On the SEIS side, the company must be trading for less than three years, have fewer than 25 full-time-equivalent employees, hold gross assets under £350,000 at the time of the share issue, and can raise up to £250,000 in total under SEIS.
EIS sits at a larger scale, and its company-side limits were adjusted from April 2026. Per HMRC's EIS guidance, most companies can hold gross assets of up to £30 million before the share issue (and not more than £35 million immediately after), raise up to £10 million across the venture capital schemes in any 12-month period, and take up to £24 million over their lifetime, with a 250-employee ceiling and a seven-year window from first commercial sale. Knowledge-intensive companies and certain "specified" companies sit on different figures. These caps move, so check the gov.uk page for the current numbers before relying on any one of them.
For the investor, the practical point is simpler: if the company falls outside its limits, the shares may not qualify, and the CGT treatment you were counting on may not be available.
Why the distinction is worth getting right
Most of the friction we see around SEIS and EIS isn't about the income tax headline - it's about people collapsing three separate capital gains mechanisms into one fuzzy idea of "tax-free". The exemption on the shares, SEIS reinvestment relief, and EIS deferral relief do different jobs, and a deferred gain in particular has a way of resurfacing exactly when it's least welcome.
The rules also change. The April 2026 adjustments to the EIS company limits are a reminder that thresholds, caps and definitions shift with each fiscal cycle. Primary sources - gov.uk's venture capital schemes guidance and HMRC's scheme-specific pages - are the place to confirm the figures, and a regulated adviser is the place to map them onto your own position.
This article is general information, not financial or investment advice. The Carry is editorial journalism, not a recommendation service. Tax treatment depends on individual circumstances and the rules can change. Seek advice from an FCA-regulated adviser before making any investment decision.
Frequently asked questions
Are gains on SEIS and EIS shares free of capital gains tax?
Yes, in defined circumstances. If you hold SEIS or EIS shares for at least three years and you received (and kept) income tax relief on them, any gain you make when you sell those shares is exempt from capital gains tax. The exemption applies to the growth in the shares themselves; it does not wipe out tax on unrelated gains.
What is the difference between SEIS reinvestment relief and EIS deferral relief?
SEIS reinvestment relief can exempt up to 50% of a gain you reinvest into qualifying SEIS shares, on up to £100,000 of SEIS investment in a tax year - that portion of the gain disappears for good. EIS deferral relief postpones a gain rather than cancelling it: the tax is deferred until the EIS shares are sold or another trigger event occurs, at which point the deferred gain comes back into charge.
How long must I hold SEIS or EIS shares to keep the capital gains tax exemption?
At least three years from the date the shares were issued (or from when the company started trading, if later). Sell before the three-year mark and the CGT exemption on the disposal is lost, and your income tax relief can be clawed back too.
Does the SEIS or EIS CGT exemption apply if I never claimed income tax relief?
No. The capital gains tax exemption on the disposal of the shares depends on income tax relief having been given and not withdrawn on those shares. If no income tax relief was claimed, the gain on disposal is not exempt under the scheme.
Can I claim a loss on SEIS or EIS shares against my tax?
Yes. Both SEIS and EIS offer loss relief: if the shares are sold at a loss, the loss (net of any income tax relief already received) can generally be set against income or capital gains, subject to the usual conditions. VCT investments do not carry loss relief.