You read the term sheet, the relief looks safe, you wire the money - and months later the company can't get the shares to qualify, because the instrument was never going to. It's one of the quietest ways an angel loses SEIS or EIS relief: not by missing a deadline, but by signing the wrong kind of paper. The schemes don't relieve your investment in a company. They relieve a specific kind of share.
Get that one idea straight and the rest follows. Some structures fit it without effort, some can be made to fit, and a couple fail it by design however good the company is. Here's the single rule that decides relief, and how the instruments you'll actually be offered measure up against it.
The schemes don't relieve your investment. They relieve a specific kind of share.
The one rule that decides relief
Strip away the detail and SEIS and EIS relief comes down to one test about the shares you receive. They have to be new ordinary shares, issued to you and fully paid in cash at the time they're issued. They have to be full-risk - carrying no preferential right to dividends or to the company's assets if it's wound up, and no arrangement to buy them back or otherwise protect your money. If the shares come with a safety net, they're not full-risk, and the relief falls away.
Two consequences follow that catch people out. First, timing matters: relief attaches when qualifying shares are issued, so an instrument that takes your cash now and issues shares later has a gap to bridge. Second, terms matter: a feature that looks like sensible investor protection - a guaranteed return, a right to be repaid, a preference over other shareholders - is exactly what disqualifies the share. HMRC's guidance for investors sets out the conditions in full. Everything below is just this rule, applied to each instrument in turn.
A priced equity round - the clean case
A priced round is the structure the schemes were built around, and it passes the test without anyone having to think hard. The company agrees a valuation, you subscribe for ordinary shares at that price, you pay in cash, and the shares are issued to you - all at the same point. New, full-risk, ordinary, paid for: every word of the rule is satisfied in a single transaction.
That alignment is why a priced ordinary-share round is the most predictable way to keep the relief. There's no later event the relief depends on, no terms quietly working against it, nothing to interpret. Provided the company itself qualifies and you take ordinary - not preference - shares, the instrument simply isn't the thing that goes wrong. If you want the cleanest possible footing for a claim, this is it.
It's worth pairing a priced round with advance assurance - HMRC's non-binding indication, given before the raise, that a company looks likely to qualify. It checks the company side of the equation; the share class and the way the round is documented are what protect your side.
SAFEs and convertible loan notes - generally not
The two instruments most likely to cost an angel their relief are the ones imported from US deal-making. Both defer the moment shares are issued, and that's precisely the moment the relief depends on.
A SAFE - a Simple Agreement for Future Equity - is a right to shares the company will issue at some later round. When your money goes in, no shares exist; you hold a promise, not equity. Because relief attaches to shares issued and paid for at the time, a SAFE has nothing for it to attach to, so it generally doesn't qualify, and routing an investment through one can forfeit relief you'd otherwise have had. We go deeper on this in are SAFEs EIS-eligible in the UK?
A convertible loan note fails on two counts. It's debt - a loan that converts to shares later - so again no qualifying shares are issued when the cash arrives. And the features that make a CLN attractive to a lender, interest and a right to be repaid if it doesn't convert, are the redemption and return features full-risk EIS shares are forbidden to carry. The detail is in do convertible loan notes qualify for EIS or SEIS? The short version: a loan isn't a share, and it carries terms a qualifying share can't.
The ASA - the UK-compatible route, if it's drafted right
So how does a UK company take money ahead of a priced round without breaking the relief? The usual answer is an Advance Subscription Agreement. An ASA is an advance payment for shares the company will issue at the next round - the British counterpart to a SAFE, but built to fit the scheme rules rather than work around them.
The fit isn't automatic; it depends on the drafting. To meet HMRC's expectations an ASA generally needs to be non-refundable - the advance can't be returned or varied - with no interest, no open-ended discount that behaves like an investor return, and a longstop date no more than around six months away, by which the shares must be issued. Strip out anything that makes the money behave like a loan and the advance reads as what it is: payment for shares, issued soon. Get those terms wrong and an ASA can fail the same way a SAFE does. The conditions and how an ASA differs from a SAFE are covered in advance subscription agreements explained. Because the rules here can change, confirm the current ASA conditions in HMRC's guidance before you rely on one.
One structure to flag while we're here: preference shares. Even though they are shares issued at the time, they carry preferential rights to dividends or assets, which makes them not full-risk - so they don't qualify either. Ordinary is the operative word in the rule.
A note on what this isn't
This is a map of how the instruments work, not a steer toward any of them or toward any company. The right structure for a given raise depends on the company, the timing and terms you can't see from a one-line summary, and the rules themselves shift with each Budget. Two things are worth doing on every deal: have the share class and the timing of issue checked by someone who knows the scheme rules, and make sure the company has advance assurance before you commit. Confirm the current position in HMRC's guidance for investors, and take FCA-regulated advice before you act. The relief is real, but it's conditional, and the conditions are unforgiving of the wrong paperwork.
Frequently asked questions
Do SAFEs qualify for EIS?
Usually not. A SAFE is a right to shares the company will issue at a later round, so no qualifying shares are issued when your money goes in - and EIS relief attaches to new shares issued and paid for at the time. Because of that gap, a SAFE generally doesn't qualify, and using one can forfeit relief you would otherwise have had. UK companies tend to use an advance subscription agreement instead, which can be drafted to fit the rules.
What is the safest EIS-compatible structure?
A priced ordinary-share round is the most predictable, because new full-risk ordinary shares are issued and paid for in cash at the same moment your money goes in, which is exactly what the rules require. A properly drafted advance subscription agreement can also qualify. In both cases you still need the company itself to qualify and the shares to be ordinary rather than preference. This is general information, not advice.
Can preference shares get EIS relief?
No. EIS relief needs full-risk ordinary shares, and preference shares carry preferential rights to dividends or to the company's assets that ordinary shares don't. Those preferential rights mean the shares aren't full-risk, so they fall outside the relief even though they are shares issued at the time of investment.
Why doesn't a convertible loan note qualify for EIS?
A convertible loan note fails on two points. It is debt that converts to shares later, so no qualifying shares are issued when the cash goes in. And it usually carries interest and a right to be repaid - return and redemption features that full-risk EIS shares are not allowed to have. A loan isn't a share, and it carries terms a qualifying share can't, so it doesn't get the relief.
Is this financial advice on which structure to use?
No. This is general information about how each instrument measures up against the SEIS and EIS rules, not a recommendation about any structure, deal or company for your situation. The rules depend on the detail of the paperwork and on your circumstances, and they change with each Budget. Confirm the current position at GOV.UK, have the share class and timing checked, and take FCA-regulated advice before you act.