Ask what happens to an EIS portfolio when its owner dies and the answer is unusually cheerful, at least by the standards of inheritance tax. Shares in unquoted trading companies, which is what most EIS-qualifying companies are, can pass to your children with full relief from the 40% charge. The income tax relief you claimed is not clawed back either. Since 6 April 2026, though, that cheerfulness has a ceiling.
The ceiling is the new £2.5m cap on 100% Business Property Relief, and it rewrites the arithmetic for larger portfolios. It also sharpens an old trap: handing the shares over during your lifetime is treated very differently from leaving them in your will. Here is how the two routes compare, and the numbers that decide it.
The rules forgive a death. They are far less forgiving of an early gift.
What happens to EIS shares when you die?
Held to death, an EIS holding gets the kindest treatment the tax system offers it. Income tax relief already claimed is not withdrawn when shares pass on death, under HMRC's guidance for venture capital scheme investors, so the 30% you reclaimed stays reclaimed. Growth to that point also generally falls out of capital gains tax, as gains on most assets do on death.
Inheritance tax is the bigger prize. Most EIS-qualifying companies are unquoted trading companies, and shares in those can qualify for Business Property Relief (BPR), the relief that takes business assets out of the 40% inheritance tax charge applying above the £325,000 nil-rate band, per GOV.UK's inheritance tax guidance. The conditions are real: two years' ownership, the shares still held at death, the company still trading. GOV.UK's Business Relief pages make plain that the relief is tested when you die, never promised in advance.
From 6 April 2026, the government's December 2025 announcement caps 100% relief at the first £2.5m of combined qualifying business and agricultural property per person, with 50% relief above that line. The Carry's reading of the two-stage settlement, £1m announced in October 2024 and £2.5m conceded in December 2025, is that it pulled most angel-sized EIS portfolios back under full relief while handing the largest estates a planning question that did not exist in 2024. The full cap mechanics live in our piece on BPR and the 2026 cap.
How does the £2.5m cap work on a large EIS portfolio?
The first £2.5m of qualifying property per person is relieved in full. Above that line relief runs at half rate, so half of the excess stays in the estate, taxed at 40%.
Worked through: take a £4m portfolio of qualifying unquoted EIS shares, owned for more than two years, on a death after 6 April 2026, with the £2.5m allowance untouched and the nil-rate band absorbed by other assets. The first £2.5m passes free of inheritance tax. The remaining £1.5m gets 50% relief, leaving £750,000 chargeable. At 40%, the bill is £300,000. Before April 2026, the same portfolio would ordinarily have passed with no inheritance tax at all.
Two details change the sum. The allowance covers business and agricultural property combined, so a family trading company or a farm draws on the same £2.5m. And AIM-listed shares sit outside the 100% band altogether: the reform gives them 50% relief only, whatever their value.
What happens if you gift EIS shares to your children during your lifetime?
A lifetime gift to your children is a disposal for tax purposes, and the rules treat it far less generously than a bequest. Two consequences follow, one immediate, one that runs for seven years.
The immediate one is the three-year rule. Give the shares away within three years of their issue and the income tax relief is withdrawn: HMRC claws back the 30% you claimed, per its venture capital schemes guidance. The only transfer that escapes withdrawal is one to a spouse or civil partner. The capital gains exemption needs the three-year hold with relief kept, so an early gift can put the growth back into charge as well. Hold past three years and a later gift no longer costs you the income tax relief.
The seven-year consequence is inheritance tax. A gift to an individual is a potentially exempt transfer, a PET: survive seven years and it leaves your estate; die sooner and it comes back into the reckoning. And the reform reaches backwards. Under the anti-forestalling rule in the December 2025 announcement, gifts made on or after 30 October 2024 use up the donor's £2.5m allowance where the donor dies on or after 6 April 2026. Giving early does not sidestep the cap. The allowance does refresh every seven years for lifetime giving, so timing now needs modelling rather than instinct. The comparison table above puts the two routes side by side.
Can you pass EIS shares to your spouse instead?
Yes, and it is the one transfer the rules accommodate at every stage. A transfer to a spouse or civil partner does not trigger the three-year withdrawal of income tax relief, and the ordinary spouse exemption keeps it free of inheritance tax.
The 2026 reform adds a further layer. Unused £2.5m allowance is transferable between spouses and civil partners, so a couple can shelter up to £5m of qualifying property at 100%, per the government's December 2025 announcement. For a couple holding between £2.5m and £5m, the order in which assets pass, and to whom, can be the difference between a nil charge and a six-figure one.
That sequencing is will-drafting territory, the kind of question a STEP solicitor models across both deaths rather than one to settle from an article. Some families look at trusts for the same job; those ground rules are different, and we set them out in our piece on EIS shares in trusts.
How do you weigh gifting now against leaving the shares in your will?
There is no general answer, only questions the two routes answer differently. These carry the weight:
- How old are the shares? Inside three years of issue, a gift to children withdraws the income tax relief outright. That alone often settles the timing.
- How big is the portfolio against £2.5m? Below the allowance, death already delivers full relief, so a gift mainly adds seven-year survival risk. Above it, the 50% band is where the modelling starts.
- What else draws on the allowance? Business and agricultural property share the same £2.5m, and gifts made since 30 October 2024 may already have used part of it.
- Will the company still qualify at death? BPR is tested then, not banked now. A company that lists, is sold, or drifts into investment activity can lose it.
- Could you need the money back? A gift is final. Shares left in a will remain yours until then.
A closing note on what this page is. It is general information about how the rules work, not financial or tax advice, and inheritance planning turns on facts no article can see: your estate, your family, your other reliefs. Check the current position on inheritance tax and Business Relief at GOV.UK, and put the actual decision in front of an FCA-regulated adviser or a STEP solicitor before any shares move.
Frequently asked questions
Do EIS shares qualify for inheritance tax relief?
Many do, but through Business Property Relief rather than anything specific to EIS. Shares in unquoted trading companies, which covers most EIS-qualifying companies, can get 100% relief within the £2.5m per-person allowance that applies from 6 April 2026, and 50% relief above it. You need two years' ownership, the shares held at death, and a company that still qualifies. AIM-listed shares get 50% relief only. The relief is conditional, never automatic.
Is EIS income tax relief clawed back when the investor dies?
No. Under HMRC's guidance for venture capital scheme investors, income tax relief is not withdrawn when the shares pass on death, even if death comes within three years of the investment. Gains to the date of death also generally fall out of capital gains tax, as they do for most assets. The three-year clawback applies to lifetime disposals, including gifts to children, not to death.
What happens if I give EIS shares to my children within three years of investing?
The gift is a disposal, so HMRC withdraws the 30% income tax relief you claimed. The capital gains exemption depends on holding for three years with relief kept, so that protection goes too. The gift is also a potentially exempt transfer for inheritance tax: it only leaves your estate if you survive seven years. Transfers to a spouse or civil partner are the exception and do not trigger the withdrawal.
Do gifts made before April 2026 count against the £2.5m allowance?
They can. Under the anti-forestalling rule in the government's December 2025 announcement, gifts made on or after 30 October 2024 use up the donor's £2.5m allowance where the donor dies on or after 6 April 2026. Giving shares away between the announcement and the start date does not escape the cap. The allowance refreshes every seven years for lifetime giving.
Is this advice on how to pass my EIS portfolio to my children?
No. This page is general information about how the rules work, not financial or tax advice, and nothing here recommends gifting, holding or restructuring. Inheritance planning depends on your estate, your family and your other reliefs. Check the current rules at GOV.UK and take advice from an FCA-regulated adviser or a STEP solicitor before acting.