Most people meet EIS through the 30% income tax relief. The capital gains deferral is the quieter half of the scheme, and for anyone who has just sold a business, a buy-to-let, or a chunk of a long-held portfolio, it can matter more. It does one specific thing: it lets you take a gain that would otherwise be taxed now and postpone the tax by reinvesting the gain into qualifying EIS shares.
Note the verb. Deferral. Not exemption, not forgiveness. The gain is put to sleep, and it wakes up later. Get that distinction wrong and the whole thing looks like free money, which it isn't.
What is EIS capital gains deferral relief?
When you sell a chargeable asset at a profit, that gain is normally liable to UK capital gains tax for the year of the sale. EIS deferral relief lets you set that gain against money you subscribe for shares in an EIS-qualifying company. To the extent you do, the gain stops being taxable now. HMRC's own guidance puts it plainly: you will not have to pay capital gains tax immediately if you use the gain from the sale of any asset to subscribe for shares in a company that qualifies for EIS (gov.uk).
The gain doesn't vanish. It's attached to the new EIS shares and carried forward. When a later event crystallises it - most often when you sell those shares - the original gain comes back into charge and is taxed then. You've bought time, and time has real value, but you haven't escaped the bill.
The gain is put to sleep, and it wakes up later.
How it differs from the income tax relief
Two reliefs, same scheme, easily muddled. The income tax relief knocks 30% off your income tax bill, capped at £1,000,000 of investment a tax year - or £2,000,000 if at least £1,000,000 of it goes into knowledge-intensive companies. Deferral relief is a separate thing that touches capital gains tax, not income tax, and the contrasts are worth holding in your head:
- No cap on the gain. There is no annual or lifetime ceiling on how much gain you can defer. The income tax relief is capped; the deferral isn't. Defer a £40,000 gain or a £4m one - the mechanism is the same.
- Connection is allowed. You generally lose EIS income tax relief if you're "connected" with the company - broadly, an employee or a holder of more than 30% of the shares. Deferral relief is more forgiving: HMRC's guidance confirms you can still get deferral relief even where income tax relief isn't available because you're connected with the company (gov.uk).
- Any asset, not just shares. The deferred gain can come from disposing of almost anything chargeable - a rental flat, a stake in a business, a painting - so long as it's a gain that would otherwise face UK CGT.
You can often claim both reliefs on the same EIS subscription, which is where the scheme starts to look genuinely generous. Same shares, two different taxes addressed at once.
What is the timing window?
This is the part that trips people up, so let's be exact. The EIS shares have to be issued within a window that opens one year before the disposal of the original asset and closes three years after it. Four years end to end, with the disposal date sitting near one end of it.
The practical reading: if you sold the asset last spring, you can still defer the gain by subscribing for qualifying EIS shares any time up to three years on. And if you bought into an EIS company in the twelve months before you sold, that earlier investment can be matched against the later gain too. Miss the window at either end and deferral simply isn't available for that gain - there's no discretion to stretch it.
When does the deferred gain come back?
The deferral lasts until a chargeable event reopens it. The common ones:
- You sell the EIS shares. The original deferred gain crystallises alongside whatever has happened to the shares themselves.
- The company stops qualifying within the relevant period - it drifts into an excluded activity, say, or breaches a scheme condition.
- You become non-UK resident while still holding the shares, within the relevant period.
When the gain reawakens, it's taxed under the CGT rates and rules in force at that point - not the rates that applied when you first made it. That's a double-edged sword. Rates could be lower by then, or higher; the deferral is a bet on timing as much as a tax saving. And because the shares themselves are an early-stage holding, they carry their own substantial risk of loss entirely separate from the tax treatment.
The company still has to qualify
Deferral relief rides on the shares being EIS-qualifying, so the company-side rules matter. As of guidance updated for the 2026-27 tax year, an EIS company must broadly have fewer than 250 full-time-equivalent employees, gross assets of no more than £30m before the shares are issued, and be within seven years of its first commercial sale; it can raise up to £10m of risk-finance investment in any twelve-month period and up to £24m over its lifetime. Knowledge-intensive companies get more generous limits on several of these. The thresholds have moved in recent years, so check the current figures on gov.uk before relying on any of them.
In practice the company secures advance assurance from HMRC before the round, then issues each investor an EIS3 certificate (or a unique investment reference) after the shares are issued and the qualifying conditions are met. That certificate is what you use to claim - including the deferral - on your Self Assessment return. No certificate, no claim.
A worked feel for the numbers
Say you sell a second property and realise a £100,000 gain. Left alone, that gain falls into this year's CGT. Instead you subscribe for £100,000 of qualifying EIS shares inside the window and elect to defer. The £100,000 gain is set aside; the CGT that would have been due this year isn't payable now. Hold the shares, and the gain stays parked. Sell them in, say, six years, and the £100,000 comes back into charge then, taxed at whatever the CGT rules say at that point - on top of whatever has happened to the value of the shares themselves.
The figures are illustrative and ignore your annual exempt amount, reliefs, and the rest of your tax position. They're here to show the shape of the thing, not to model your bill.
Common questions
What is EIS capital gains deferral relief?
It lets you postpone the capital gains tax due on a gain by reinvesting that gain into shares in an EIS-qualifying company. The tax is not cancelled; it is parked. The deferred gain comes back into charge later, usually when you sell the EIS shares, and is then taxed under the rules in force at that point.
What is the time window for EIS deferral relief?
The EIS shares must be issued in the period beginning one year before, and ending three years after, the date you disposed of the original asset. Reinvest inside that four-year window and the gain can be deferred; fall outside it and deferral relief is not available for that gain.
Is there a limit on how much gain you can defer through EIS?
No. Unlike EIS income tax relief, which is capped at £1,000,000 of investment per tax year (or £2,000,000 if at least £1,000,000 goes into knowledge-intensive companies), there is no upper limit on the amount of gain you can defer. You can defer a gain of any size, provided you reinvest enough qualifying money inside the timing window.
Does the gain have to come from selling shares?
No. The gain can come from disposing of any chargeable asset - a second property, a business, a portfolio of listed shares, a work of art. As long as it is a gain that would otherwise be liable to UK capital gains tax, it can be matched against a qualifying EIS subscription.
When does the deferred gain become taxable again?
The deferred gain is brought back into charge when a chargeable event happens: typically when you sell or otherwise dispose of the EIS shares, but also if the company loses its qualifying status within the relevant period, or if you become non-UK resident while still holding the shares. At that point the original gain is taxed at the CGT rates and rules that apply then. This is general information, not financial advice.
One last word on register: everything above is editorial explanation, not a recommendation. EIS reliefs sit on top of an investment that can lose its entire value, and the tax treatment turns on your own circumstances and on rules that change. Read the primary guidance on gov.uk and take advice from an FCA-regulated adviser before you act on any of it.