← Guides / UK Investment & Savings

Enterprise Investment Scheme

The Enterprise Investment Scheme (EIS) is a UK government initiative designed to encourage investment in smaller, unquoted trading companies by offering generous tax reliefs. For the 2025/26 tax year, EIS offers 30% income tax relief on investments of up to £2 million per tax year. If you invest in a Knowledge Intensive Company (KIC), the maximum is increased to £12 million per tax year. EIS is one of the most generous tax-advantaged investment schemes available in the UK, but it is also high risk — the underlying companies are typically early-stage and may fail.

Income Tax Relief

You can claim income tax relief at 30% of the amount invested, reducing your Income Tax liability for the tax year. For example, an investment of £50,000 reduces your tax bill by £15,000. The relief cannot exceed your total Income Tax liability for the year — you cannot get a refund of tax you have not paid. Unused relief can be carried back to the previous tax year, subject to the annual limits. The shares must be newly issued (not purchased from another shareholder) and held for at least three years from the date of issue (or, if later, from the date the trade commenced). If the shares are disposed of within the three-year period, the income tax relief is clawed back in full.

CGT Deferral Relief

EIS offers Capital Gains Tax deferral relief, allowing you to defer a capital gain by reinvesting it into EIS qualifying shares. There is no limit on the amount of gain you can defer — you simply invest an amount up to the gain into EIS shares, and the gain is deferred until you dispose of the EIS shares (or they cease to be qualifying). The deferred gain crystallises at that point, though you can reinvest again (a "EIS deferral into another EIS") to continue deferring. This is particularly useful for entrepreneurs selling a business who want to defer a large capital gain while supporting new enterprises. The deferral shares must be issued in the period from one year before to three years after the gain arose.

CGT Disposal Exemption

If EIS shares are held for at least three years, any gain on their disposal is entirely free from Capital Gains Tax. This is a full exemption, not just a deferral. Combined with the 30% income tax relief, this makes EIS a potentially very tax-efficient vehicle — provided the company succeeds. If the shares are disposed of at a loss (or become worthless), you can claim loss relief. The loss (net of income tax relief already received) can be set against your income of the same year or the previous year, or against capital gains. Loss relief is available at your marginal Income Tax rate, which can be up to 45% for additional-rate taxpayers.

Qualifying Conditions

To qualify for EIS relief, the company must: be an unquoted trading company (not listed on a recognised stock exchange, though AIM is permitted from 6 April 2025 onwards), carry on a qualifying trade (certain trades like property development, financial services, and legal services are excluded), have fewer than 250 full-time employees (500 for KICs), have gross assets of no more than £15 million before investment (£16 million after), and have been trading for less than seven years (ten years for KICs). The investor must not be "connected" with the company — generally meaning they cannot be an employee or director (though certain business angels can be directors without losing relief), and cannot own more than 30% of the company (including shares held by associates).

Knowledge Intensive Companies

KICs are defined as companies whose operating costs are at least 15% attributable to qualifying R&D or innovation activities, or that are carrying on a trade that requires significant innovation and are university spin-offs. KICs benefit from higher investment limits (£12 million per year), a longer age limit (ten years), a longer period to use the funds (seven years), and a higher employee threshold (500). These concessions recognise that knowledge-intensive businesses often need more capital and more time to develop their products or services before generating revenue.

Advance Assurance

Before investing, it is standard practice for the company to obtain advance assurance from HMRC. This is a letter from HMRC confirming that, based on the information provided, the proposed share issue appears to meet the EIS qualifying conditions. Advance assurance is not legally binding — HMRC can later withdraw relief if the circumstances change or if information was incorrect — but it provides significant comfort to investors. Companies can apply for advance assurance online via HMRC's digital service. The process typically takes 4–8 weeks. Investors should always check that advance assurance has been obtained and read the terms carefully before committing funds.

Carry Back and Interaction with SEIS

EIS relief can be carried back to the preceding tax year, up to a maximum of £2 million carried back (subject to the total annual limit for that year). This is useful if you invested after the end of the tax year but want to claim relief against the previous year's Income Tax liability. EIS and SEIS investments can be made in the same tax year, but the combined investment count towards the overall limits. You cannot invest in the same company under both EIS and SEIS in the same tax year. If the company is also using the SEIS scheme, the SEIS investment must be made before the EIS investment.