EIS & SEIS: What Investors Need to Know

The UK is one of the most supportive markets in the world for early-stage investment, thanks to the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS).

These government-backed schemes encourage private investment into young, innovative companies by offering generous tax reliefs. For investors, this means a chance to back the next generation of high-growth businesses while significantly reducing downside risk.

Seed Enterprise Investment Scheme (SEIS)

SEIS is aimed at the very earliest stage of a company's life. It's designed to help founders raise their first funding round and reward investors for taking on that risk.

Key facts for investors:

• •Income Tax Relief: 50% on investments up to £200,000 per tax year.
• •Capital Gains Tax (CGT) Reliefs:
• ◦No CGT on gains from SEIS shares held for at least 3 years.
• ◦50% reinvestment relief on other gains invested into SEIS.
• •Loss Relief: Offset losses against Income Tax or CGT.
• •Company Limits:
• ◦Max £250,000 raised under SEIS.
• ◦Companies must be <2 years old, with <25 employees and assets <£350,000.
• •Other rules:
• ◦The company cannot have previously raised EIS before SEIS.
• ◦SEIS shares must be issued before any EIS shares (they cannot be issued on the same day).

Enterprise Investment Scheme (EIS)

EIS is designed for startups looking to scale beyond the seed stage. It extends many of the same benefits as SEIS, but with higher investment limits and broader eligibility.

Key facts for investors:

• •Income Tax Relief: 30% on investments up to £1m per tax year (or £2m if at least £1m is invested into knowledge-intensive companies).
• •Capital Gains Tax (CGT) Reliefs:
• ◦No CGT on gains from EIS shares held for at least 3 years.
• ◦Deferral relief: defer CGT on other gains by reinvesting into EIS.
• •Loss Relief: Offset against Income Tax or CGT.
• •Inheritance Tax Relief: 100% IHT relief after 2 years (if still held).
• •Company Limits:
• ◦Companies can raise up to £12m (or £20m for knowledge-intensive companies).
• ◦Must be <7 years old (<10 years for knowledge-intensive) at first EIS investment.

Rules Investors Must Know (The Fine Print)

Many investors and founders are tripped up by technical rules. Here's what matters:

• •SEIS first, EIS after:
• ◦A company can raise both SEIS and EIS, but SEIS shares must be issued before any EIS shares.
• ◦They cannot be issued on the same day. This is critical, or investors may lose relief.
• •Qualifying shares only:
• ◦Must be ordinary shares, fully paid in cash, with no preferential rights (e.g., no preferential dividends, no liquidation preferences).
• ◦Convertible loans, preference shares, or debt do not qualify.
• •Connection to the company:
• ◦Investors can't be employees (except directors).
• ◦You must hold <30% of the company's shares, votes, or assets.
• ◦Associates (spouse, children, parents, business partners) are included in this 30% test.
• •Holding period:
• ◦Shares must be held for at least 3 years to retain relief.
• ◦Selling, gifting, or restructuring the company too soon can cause relief to be clawed back.
• •Excluded activities:
• ◦Certain trades don't qualify, e.g. coal, steel, farming, property development, financial services, hotels/nursing homes, energy generation with FiT/RHI subsidies.
• •Investment process:
• ◦Most companies seek Advance Assurance from HMRC before raising, but this is not a guarantee.
• ◦After shares are issued, the company must submit a compliance statement (SEIS1/EIS1) to HMRC.
• ◦HMRC then authorises the company to issue certificates to investors (SEIS3/EIS3 forms), which you use to claim relief on your self-assessment.
• •Timing of tax relief:
• ◦You can claim relief against income tax in the year of investment, or carry it back to the previous year.
• ◦CGT deferral/reliefs apply once the certificates are issued.
• •Funds / Nominee structures:
• ◦If investing through an EIS/SEIS fund, you won't know the exact companies until after the fund deploys capital. Certificates may take 12–24 months to arrive.

Investor Experience (Step by Step)

1. 1
   Advance Assurance: Company checks with HMRC.
2. 2
   Investment & Share Issue: Investors subscribe for qualifying shares.
3. 3
   Compliance Statement: Company files SEIS1/EIS1.
4. 4
   Certificates Issued: HMRC approves → company sends SEIS3/EIS3 forms to investors.
5. 5
   Claim Tax Relief: Investor claims via self-assessment.
6. 6
   3-Year Holding Period: Must keep shares to maintain reliefs.

Why It Matters

For investors, SEIS and EIS combine:

• •Upside potential: exposure to high-growth startups.
• •Downside protection: through income tax relief, CGT reliefs, and loss relief.
• •Portfolio strategy: allows broader diversification into multiple startups.
• •Legacy planning: inheritance tax relief makes them powerful tools for estate planning.

They are the cornerstone of the UK angel ecosystem — but only when used correctly. Investors should always check that:

• •Shares qualify,
• •Certificates are issued correctly,
• •And compliance rules are followed for the full 3-year period.