The sale completes, the money lands, and somewhere in the paperwork a capital gains tax computation is taking shape. For 2026/27 the rates on a share sale are 18% within the basic-rate band and 24% above it; a seller who qualifies for Business Asset Disposal Relief pays 18% on up to £1m of lifetime gains. Either way, the number is large. And if some of that money was heading into early-stage companies anyway, there is a relief built for exactly this moment.
EIS deferral relief lets a seller postpone the CGT on the sale gain by reinvesting the gain into EIS shares. Postpone is the operative word. This piece walks through the relief from the seller's side: the window, what exactly has to be reinvested, the awkward overlap with BADR, and the day the bill comes back.
Deferral moves the tax bill down the road. It never tears it up.
What deferral does for a seller
Deferral relief is part of the Enterprise Investment Scheme. Reinvest a chargeable gain into newly issued EIS shares and the CGT on that gain is postponed until you dispose of those shares. The gain can come from any asset, and a business sale is the classic case: the relief is typically used by someone holding a large, fresh gain who already wanted early-stage exposure.
We've covered the base mechanics in our general explainer. This piece stays on the seller's side of the line: what changes when the gain comes from selling your company, how the relief sits next to BADR, and the timing choices an exit opens up.
Two boundary points before the detail. Deferral is for individuals; a limited company cannot claim EIS relief in any form. And deferral is separate from the 30% income tax relief most people mean when they say EIS. The same subscription may qualify for both, but they are distinct claims with distinct conditions.
The mechanics that matter after an exit
The window first. The EIS shares must be issued in the period running from one year before the gain arises to three years after it. The backward reach surprises people: EIS shares you subscribed for in the twelve months before completion can shelter the sale gain, which matters to a founder who was already angel investing before the exit.
Second, you reinvest the gain, not the proceeds. Say the sale produces a chargeable gain of £400,000 inside £3m of proceeds (an illustration, nothing more). Putting £400,000 into EIS shares can defer the whole charge; putting £100,000 in defers a quarter of it. The rest of the money can go wherever it was going anyway.
Third, the claim runs through the EIS paperwork. The company you invest in obtains approval from HMRC and sends you a form EIS3, and the deferral claim is made through that certificate and your tax return. The conditions and the process are set out in HMRC's guidance for investors. Check the current detail there before you act, because the small print moves.
The snag: the gain comes back
Deferral is a postponement, never an exemption. When you dispose of the EIS shares, the deferred gain comes back into charge. Here is the part sellers most often miss: it's taxed at the rates in force then, not the rates that applied when you sold your business. Today that means 18% or 24% depending on your band (the current rates are on GOV.UK); what it means in five years is whatever five years of Budgets decide. You are swapping a known bill for an unknown one, and that cuts both ways.
The BADR overlap deserves its own caution. Suppose your sale gain qualified for Business Asset Disposal Relief at 18%. Defer it into EIS shares and the question becomes what happens when that gain returns to charge: whether BADR treatment follows the gain, and in what order the claims are best made, depends on the detail of the legislation and on your circumstances. This corner is genuinely complex, the sums after a business sale are usually the largest a seller will ever deal with, and it is firmly an adviser question. Raise it before you reinvest, not after.
The trade you're actually making
Strip the tax away and look at what changes hands. Before the claim you hold a banked gain and a tax bill, both certain. After it you hold shares in early-stage companies, which are about as far from certain as investing gets. Most early-stage companies fail. EIS loss relief softens a failure; it doesn't undo one, and the deferred gain still comes back into charge when the shares are disposed of, however the company performed.
So the sensible frame puts the investment first and the relief second. A seller who wanted early-stage exposure anyway is using deferral to do, on better tax terms, what they had planned to do regardless. A seller reaching for EIS purely to push back this year's CGT bill is letting a tax position pick their investments, and that is the classic way relief turns into loss. Relief is not return.
A note on what this isn't
This piece explains how a relief works. It doesn't suggest you use it. Whether deferral makes sense depends on your gain, your tax position, your appetite for early-stage risk and the rest of your affairs, none of which a blog post can see. The rules themselves shift with Budgets, and the BADR interaction needs specialist eyes on your specific numbers. Confirm the current position in HMRC's venture capital schemes guidance and take regulated financial and tax advice before reinvesting a business-sale gain.
Frequently asked questions
Can I defer capital gains tax by investing in EIS?
Yes. EIS deferral relief lets an individual postpone the CGT on a chargeable gain, including a gain from selling a business, by reinvesting the gain into newly issued EIS shares. The deferred gain comes back into charge when those EIS shares are disposed of. Deferral is only available to individuals; a limited company cannot claim it.
How long do I have to reinvest a gain into EIS?
The EIS shares must be issued in the window running from one year before the gain arises to three years after it. Shares subscribed for in the twelve months before a business sale can therefore shelter the sale gain. You reinvest the amount of the gain you want to defer, not the full sale proceeds.
Is the deferred gain cancelled?
No. Deferral is a postponement, never an exemption. The deferred gain returns to charge when you dispose of the EIS shares, and it is taxed at the CGT rates in force at that point, which may differ from today's 18% and 24%. Check the current rates at GOV.UK.
Does EIS deferral work with Business Asset Disposal Relief?
They interact, and the interaction is complex. If your sale gain qualified for BADR at 18%, deferring it raises questions about what relief applies when the gain comes back into charge and about the order in which claims are best made. The answer depends on your circumstances, so take specialist tax advice before reinvesting a BADR-qualifying gain.
Is this advice on whether I should defer my gain?
No. This article is general information about how a relief works, not financial or tax advice. Whether deferral suits you depends on your tax position, your appetite for early-stage risk and your wider affairs, and the rules change at Budgets. Confirm the current position at GOV.UK and take regulated advice before acting.