What tax relief is available to investors?
📘 Overview
This guide explains the five tax reliefs available to investors in companies that qualify under the Seed Enterprise Investment Scheme (SEIS) or the Enterprise Investment Scheme (EIS).
We outline the purpose of each relief, key eligibility rules, holding periods, and practical points that investors commonly overlook.
📊 Summary Table: SEIS vs EIS (High-Level Comparison)
| Feature | SEIS | EIS |
|---|---|---|
| Income tax relief | 50% | 30% |
| Max annual investment for relief | £100,000 | £1 million |
| CGT exemption on gains | Yes, after 3 years | Yes, after 3 years |
| CGT reinvestment relief | Up to 50% of gains reinvested | Full deferral of gains reinvested |
| Minimum holding period | 3 years | 3 years |
| Loss relief available | Yes | Yes |
| Inheritance tax Business Property Relief | Normally available after 2 years | Normally available after 2 years |
1. 💡 Income Tax Relief
Investors may reduce their personal income tax by claiming relief on the amount invested in qualifying shares.
How the relief works
- SEIS: You can offset 50% of the amount invested against your income tax liability.
- EIS: You can offset 30% of the amount invested.
Key rules
- Shares must be held for at least 3 years.
- Shares must be full-risk ordinary shares, fully paid for at the time of issue.
- There is no minimum investment.
You may carry back all or part of the investment to the preceding tax year.
Maximum qualifying investment:
- SEIS: £100,000 per tax year (maximum tax relief of £50,000)
- EIS: £1 million per tax year (or up to £2 million if at least £1 million is in “knowledge-intensive” companies)
Example
If you invest £20,000 under SEIS, you could reduce your income tax bill by £10,000 (50% of the investment).
2. 💡 Capital Gains Tax (CGT) Exemption
If the investor sells their shares after the minimum holding period, any gain is exempt from Capital Gains Tax.
Conditions for full exemption
- Shares must be held for at least 3 years.
- You must have claimed the corresponding income tax relief.
- The company and the investment must continue to meet SEIS/EIS qualifying rules throughout the holding period.
Practical point
If you break the qualifying conditions (for example, selling the shares too early), the CGT exemption may be withdrawn.
3. 💡 Capital Gains Tax Deferral (EIS) and Reinvestment Relief (SEIS)
SEIS and EIS offer different forms of CGT relief when gains are reinvested.
SEIS: Reinvestment Relief (up to 50%)
- Up to 50% of gains subject to CGT can be exempted when those gains are reinvested into a qualifying SEIS company.
- The disposal that created the gain must be within 36 months before or 12 months after the SEIS investment.
- The exemption applies only while you hold the SEIS shares.
EIS: Capital Gains Deferral Relief
- All capital gains can be deferred when reinvested into EIS-qualifying shares.
- The gain becomes chargeable only on a future disposal of the EIS shares or if the relief is withdrawn.
- There is no upper limit on the deferred amount.
4. 💡 Loss Relief
If the investment does not perform as hoped and the shares are sold at a loss, investors may claim relief to reduce their tax liabilities.
How the relief works
- The loss can be offset against:
- Income tax for the year of disposal or the previous year, or
- Capital gains in the year of disposal.
- The allowable loss is calculated after deducting any income tax relief already claimed when the shares were acquired.
Example
If you invested £20,000 under EIS and claimed £6,000 income tax relief, your effective cost is £14,000. If you later sell the shares for £0, you may claim loss relief on the £14,000, not the original £20,000.
5. 💡 Inheritance Tax Relief (Business Property Relief)
Shares in SEIS/EIS-qualifying companies typically qualify for Business Property Relief (BPR) for inheritance tax.
Key points
- Relief is usually 100%, meaning the value of the shares may be excluded from the taxable estate.
- Shares must be held for at least 2 years and still be held at death to qualify.
- The company must continue to meet the requirements for BPR throughout the period.
✅ Practical Points & Common Pitfalls
- Ensure the company remains qualifying for the full holding period; otherwise relief may be clawed back.
- Keep all HMRC compliance certificates (SEIS3/EIS3 forms) — these are required to claim relief.
- Consider claiming carry-back to accelerate tax relief.
- Loss relief may significantly mitigate risk, particularly for early-stage investments.
- Always check interaction between CGT deferral, income tax relief, and IHT relief to avoid unintentional loss of benefits.