EIS Loss Relief

📘 Overview

This guide explains how EIS loss relief works when an Enterprise Investment Scheme (EIS) investment results in a loss.

It shows how losses are calculated, how they can be used for tax relief, and when timing or structure makes things more complex.

This is a general guide to help you understand the rules and outcomes, it is not personal tax advice.

💡 What EIS Loss Relief Does

EIS loss relief allows a loss on EIS shares to be used to reduce your tax bill.

Once the loss is calculated, it can be used in one of two ways:

Set against income tax, or
Set against capital gains tax

The relief works by converting a capital loss into something more flexible, but the exact amount you can claim depends on how much EIS income tax relief you originally received and whether any of that relief has been withdrawn.

🧠 Example: Selling Shares at a Loss

Scenario

You subscribe £100,000 for EIS shares in a company
You claim EIS income tax relief of £30,000
Less than three years later, you sell all the shares for £60,000
Because the shares were sold early, HMRC withdraws £18,000 of the relief (£60,000 x 30%)
£12,000 of EIS income tax relief remains attributable to the shares

How the allowable loss is calculated

Original cost: £100,000
Minus disposal proceeds: £60,000
Minus Income tax relief still attributable: £12,000
Allowable loss: £28,000

This £28,000 is the amount that can be used for EIS loss relief. It can be set against income tax or capital gains, depending on how you choose to claim.

This example shows why timing matters. Selling within three years can reduce the relief available, but it does not usually remove loss relief altogether.

🔁 Using the Loss - Carry Back and Carry Forward

How the loss is used depends on how you choose to claim it.

If you claim the loss against income

The loss can be set against income of:
- the tax year in which the loss arises, and/or
- the previous tax year
The loss can be split between the two years if needed
A claim must normally be made within one year of 31 January following the end of the tax year of the loss

This flexibility is one of the main advantages of EIS loss relief.

If you use the loss against capital gains

The loss is first used against gains in the same tax year
Any unused loss is carried forward to future tax years
Carried-forward losses can be used against future gains, subject to normal CGT rules

Capital losses cannot be carried back to earlier years.

🧾 How to Claim (High-Level Steps)

At a high level, the process works as follows:

Confirm that a disposal, liquidation, or negligible value position has arisen
Calculate the allowable loss after adjusting for EIS income tax relief
Decide whether the loss will be used against income or capital gains
Include the claim on the Self Assessment tax return for the relevant year

Supporting calculations and clear records are important, especially where relief has been withdrawn or partially restricted.

⚠️ When Things Get More Complicated

You should expect additional complexity if any of the following apply:

The shares were sold or the company was liquidated within three years
Some value was returned to shareholders on liquidation
EIS deferral relief was used when the shares were acquired
A negligible value claim is required
You have multiple EIS investments or overlapping disposals
The loss is large or spans multiple tax years

In these situations, relief can be restricted, deferred gains may crystallise, or capping rules may apply. The correct treatment depends on the detail and timing.

🔗 Helpful HMRC Resources

HS297 — Enterprise Investment Scheme and Capital Gains Tax
HS286 — Negligible value claims and income tax losses

🤝 Need Help?

EIS loss relief is very specific, and small details can make a significant difference to the outcome. Even where circumstances look similar to HMRC examples, the correct treatment depends on timing, relief history, and how the disposal or liquidation was handled.

If you’re dealing with an EIS loss, we recommend speaking to us before anything is submitted to HMRC. We can review your position, calculate the correct figures, and ensure the claim is dealt with accurately and confidently. If your circumstances involve early disposals, liquidation returns, or deferral relief, getting this right from the outset is especially important.