EIS, the Enterprise Investment Scheme, is a UK government tax relief that rewards individuals for investing in shares of young, higher-risk, unquoted companies. The headline deal: 30% of what you put in comes straight off your income tax bill, and any gain is free of capital gains tax if you hold the shares for at least three years. It has quietly underwritten a large share of the angel cheques written in Britain since 1994.
That is the polite summary. The useful version is in the detail - because EIS giveth, and EIS taketh back if you trip a wire. So here is how it actually works, why the Treasury bothers, and the bits the glossy pitch decks tend to skim.
The relief isn't a freebie. It's the state co-funding a bet it wants you to make.
Why does EIS exist?
Early-stage companies are starved of capital because they are genuinely risky - most go nowhere, and a chunk go to zero. Left alone, a rational investor with a mortgage and a pension would simply not fund them. EIS is the government's fix: shift some of that downside onto the public purse, and private money follows. The relief is, in effect, the state co-investing alongside you without taking any of the upside.
Its smaller, more generous sibling, SEIS (the Seed Enterprise Investment Scheme), does the same job for even earlier companies. Most British angels meet EIS the moment they write a cheque into a UK startup, often without grasping quite how much of the risk the taxman is shouldering.
What does EIS give the investor?
Five distinct reliefs sit inside EIS. You won't use all of them on every deal, but it's worth knowing the full hand.
- Income tax relief - 30%. Invest £20,000 and, assuming you have enough tax liability to set it against, you can knock £6,000 off your income tax bill. You can claim on up to £1,000,000 of investment per tax year - rising to £2,000,000 if at least £1m of that goes into knowledge-intensive companies (broadly, R&D-heavy firms). The relief can be carried back to the previous tax year if it suits your bill better.
- Tax-free growth. Hold the shares for at least three years and receive income tax relief, and any gain when you sell is exempt from capital gains tax. The 10x exit, if you ever get one, is yours in full.
- Capital gains deferral. Sitting on a taxable gain from selling, say, a property or other shares? Reinvest it into EIS and you can defer the CGT on that gain - postponing the bill, not erasing it, until the EIS shares are sold or another trigger applies.
- Loss relief. The one nobody markets, and the one that matters most. If the company folds, you can set the loss - net of the income tax relief already claimed - against your income or capital gains. It softens the landing on the bets that don't work, which is most of them.
- Inheritance tax. Many EIS shares have historically qualified for relief from inheritance tax once held long enough. The rules here have been under review, so treat it as a maybe and check the current position with an adviser rather than banking on it.
Stack income tax relief and loss relief together and the effective downside on a failed EIS investment is far smaller than the cash you put in. That asymmetry - capped loss, uncapped gain - is the whole point.
What are the conditions and catches?
The reliefs come with strings, and HMRC pulls them if you don't follow the rules. Three matter most to an investor.
The three-year hold
You must hold EIS shares for at least three years from issue (or from when the company starts trading, if that's later). Sell early and the income tax relief you claimed gets clawed back. Three years is the floor, not the plan - in practice the money is usually tied up far longer, because there is rarely anyone to sell unquoted shares to.
You have to qualify too
The reliefs are for outside investors putting money at risk, not insiders. Broadly, you can't be an employee of the company (some director arrangements aside), and your stake plus associates' can't tip past 30% of the company. You also need to be a UK taxpayer with enough liability for the relief to bite - if you pay little or no UK income tax, there's little for the 30% to reduce.
The company has to qualify
This is where most EIS claims actually fail, and it's largely out of your hands. The company must be the right kind of business - young, unquoted, carrying on a qualifying trade. Under current HMRC rules the company generally must have fewer than 250 full-time-equivalent employees, hold no more than £30 million in gross assets before the share issue (and not more than £35 million immediately after), and take the investment within seven years of its first commercial sale. There are annual and lifetime caps on how much a company can raise across the venture-capital schemes, and knowledge-intensive companies get more generous limits on several of these. These company-side figures changed in April 2026, so check the precise current numbers on gov.uk's EIS guidance for companies before relying on any of them.
Two things protect you here. First, sensible companies obtain advance assurance from HMRC before the round - a non-binding nod that the business looks EIS-eligible. Ask for it; a startup that can't produce it should prompt a raised eyebrow. Second, the rules can be breached after you invest - if the company drifts into a non-qualifying activity within three years, your relief can vanish through no fault of your own.
SEIS vs EIS - what's the difference?
Same family, different stage. SEIS targets the very earliest companies and is more generous to compensate for the higher risk; EIS picks up slightly later, larger ones. A single company often raises a first slug under SEIS and then moves to EIS as it grows.
- SEIS: 50% income tax relief on up to £200,000 per tax year. The company must be trading less than three years, have fewer than 25 full-time-equivalent employees and under £350,000 in gross assets at share issue, and can raise up to £250,000 in total under the scheme. There's also a CGT reinvestment relief worth 50% of a reinvested gain, on up to £100,000 a year.
- EIS: 30% income tax relief on up to £1,000,000 per tax year (or £2m with knowledge-intensive investment), for bigger, slightly more established companies, with CGT deferral rather than reinvestment relief.
Both share the three-year minimum hold, the need for HMRC advance assurance, the certificate-based claim, the CGT exemption on qualifying gains, and loss relief. If you want the full picture, HMRC's venture capital schemes guidance is the primary source. (For completeness: the third scheme in the family, the Venture Capital Trust or VCT, works differently again - 20% relief on up to £200,000, a five-year hold, tax-free dividends, but no loss relief.)
How do you actually claim EIS relief?
The mechanics are simpler than the eligibility rules. After your shares are issued and the company has been trading the required time, it sends you an EIS3 certificate (or a unique investment reference for online claims). That document is your proof the investment qualified. You then claim through your Self Assessment return for the relevant tax year, or by writing to HMRC - and you can point the relief back to the prior year if that's where the tax bill sits.
No certificate, no claim. If a company is slow to issue EIS3s - it happens - chase it, because you can't bank the relief without the paperwork.
The honest bit
EIS is generous because the underlying bet is brutal. The relief exists to make a portfolio of mostly-failing investments survivable, not to turn a bad company into a good one. Plenty of people have backed a weak business purely for the tax break and learned the hard way that 30% off the price of a zero is still a loss. The tax tail should never wag the investment dog.
And to be plain: this is general editorial information, not financial or investment advice. The rules shift, your circumstances are your own, and the figures here can date. Before making any EIS investment, take advice from an FCA-regulated adviser and confirm the current rules with gov.uk.
Frequently asked questions
How much tax relief do you get with EIS?
EIS gives 30% income tax relief on the amount invested, on up to £1,000,000 of investment per tax year (or up to £2,000,000 if at least £1,000,000 goes into knowledge-intensive companies). Relief can be carried back to the previous tax year. Gains on EIS shares held for at least three years are exempt from capital gains tax where income tax relief was given, and loss relief is available if the company fails.
What is the difference between SEIS and EIS?
SEIS is for the very earliest companies and gives 50% income tax relief on up to £200,000 a year. EIS is for slightly later, larger companies and gives 30% relief on up to £1,000,000 a year (or £2,000,000 with knowledge-intensive investment). Both need a three-year minimum holding period and HMRC advance assurance. A company often raises under SEIS first, then moves to EIS.
How long must you hold EIS shares?
EIS shares must be held for at least three years from the date of issue (or from when the company began trading, if later). Selling earlier, or breaching the rules within that window, can cause HMRC to withdraw the income tax relief you claimed.
How do you claim EIS tax relief?
After the company issues your shares, it sends you an EIS3 certificate (or a unique investment reference). You then claim the relief through your Self Assessment tax return, or by writing to HMRC, for the relevant tax year. You generally need to be a UK taxpayer to use the reliefs.
Is EIS investment risky?
Yes. EIS exists precisely because the companies that qualify are young, unquoted and high-risk; many fail. The tax reliefs are designed to compensate for that risk, not remove it. This article is general information, not financial advice. Anyone considering an EIS investment should take advice from an FCA-regulated adviser first.