Skip to main content
Book a call — £89
Menu

EIS Explained: UK Tax Relief for Investors (2026)

We're not a law firm — we help you find the right legal support. For advice on your situation, speak to a legal adviser or find a solicitor.

Part ofCorporate Legal Documents UK

Written by Brad Askew Solicitor (non-practising)
Brad is on the roll of solicitors of England & Wales but does not hold a practising certificate and does not provide legal advice.
Updated June 2026 · England & Wales
The Enterprise Investment Scheme, usually shortened to EIS, is one of the most generous tax reliefs the UK government offers. It exists because smaller, early-stage companies often struggle to raise capital from traditional lenders, and the scheme gives individual investors a set of tax incentives to make backing those businesses more attractive. For investors, the headline draw is income tax relief on qualifying share subscriptions, alongside potential capital gains tax benefits and loss relief if things do not go to plan. For companies, EIS status can be the difference between closing a funding round and not. This guide walks through how the scheme works, who it suits, the main conditions attached to the reliefs, and the points that tend to trip people up. It is written for individual investors and founders who want a plain-English overview before taking specialist tax input on their own situation.

Overview

EIS is a statutory tax relief regime administered by HMRC that encourages private investment into qualifying unquoted trading companies. It sits alongside the Seed Enterprise Investment Scheme (SEIS), which targets earlier-stage businesses, and Venture Capital Trusts (VCTs), which take a pooled approach.

When an individual subscribes for new ordinary shares in a company that meets the EIS conditions, and holds those shares for the required period, they can claim a set of reliefs against their personal tax bill. The main ones are income tax relief at a percentage of the amount subscribed, exemption from capital gains tax on a qualifying disposal, deferral of existing capital gains where the gain is reinvested into EIS shares, and loss relief if the shares fall in value.

The company itself must satisfy conditions on trade, size, age, and use of the funds. Both sides of the transaction need to stay compliant throughout the holding period, or reliefs can be withdrawn. Because the rules are detailed and interact with personal tax circumstances, most investors take specialist advice before claiming.

Key steps

  1. Check the company qualifies. Before anything else, confirm the company is carrying on a qualifying trade, is within the size and age limits set by HMRC, and intends to use the money raised for a qualifying business activity. Most companies obtain advance assurance from HMRC, which gives investors comfort that the shares should qualify.
  2. Subscribe for new ordinary shares. EIS relief is only available on newly issued full-risk ordinary shares paid for in cash at the time of issue. Buying existing shares from another shareholder does not qualify. Keep the share certificate, subscription documents, and proof of payment safe, as you will need them later.
  3. Receive your EIS3 certificate. After the company has been trading for the required period, it applies to HMRC and, once approved, issues each investor a compliance certificate (form EIS3 or EIS5 for approved funds). This is the document that unlocks your ability to claim reliefs on your tax return.
  4. Claim the reliefs on your tax return. Income tax relief is claimed through Self Assessment, or by writing to HMRC to amend a PAYE code. You can claim in the tax year the shares were issued, or carry the claim back one year. Capital gains deferral and disposal relief are claimed using the relevant sections of your return.
  5. Hold the shares for the minimum period. To keep the reliefs, you must hold the shares for the minimum qualifying period from the date of issue or the date trade commenced, whichever is later. Selling early, breaching the connection rules, or the company losing its qualifying status can all cause some or all of the relief to be clawed back.

Common questions

If you're dealing with this kind of situation, a call with an experienced legal adviser can help you work out the right next step — from £89.

Common questions

Q What is the main benefit of investing through EIS?
The headline benefit is income tax relief on the amount subscribed for qualifying shares, set at a percentage of the investment up to an annual cap. On top of that, any growth in the shares can be free of capital gains tax on disposal, losses can be offset against income or gains, and existing capital gains can be deferred by reinvesting into EIS shares. The combined effect can significantly reduce the downside risk of early-stage investing.
Q How long do I need to hold EIS shares?
You need to hold the shares for the minimum qualifying period, currently three years, measured from the date the shares were issued or the date the company started trading, whichever is the later. Disposing of the shares before that point generally means HMRC will claw back the income tax relief. The company also has to continue meeting the EIS conditions throughout that period.
Q Can I claim EIS relief if I work for the company?
Generally no. EIS has strict rules on being 'connected' to the company. If you are a paid director or employee, or if you and your associates hold more than a set percentage of the shares, voting rights, or assets on a winding up, you will usually be treated as connected and unable to claim income tax relief. There is a limited exception for unpaid directors and for so-called business angels who become paid directors after investing.
Q What is the difference between EIS and SEIS?
Both schemes encourage investment into small trading companies, but SEIS targets very early-stage businesses and offers a higher rate of income tax relief on a smaller annual investment limit. EIS applies to slightly larger and more established companies, with a higher annual investment cap but a lower rate of income tax relief. Many investors use SEIS first and then EIS as a company grows, and the two sets of reliefs can sometimes be combined on different tranches of shares.
Q What happens if the company fails?
If an EIS company fails and the shares become worthless or are sold at a loss, you can usually claim loss relief. The loss, reduced by any income tax relief you have kept, can be offset against either your capital gains or, subject to conditions, your income for the year of the loss or the previous year. This loss relief is one of the reasons EIS is often described as tax-efficient rather than just tax-advantaged.
Q Do I need HMRC approval before investing?
You personally do not, but the company typically seeks advance assurance from HMRC before a fundraising round to confirm it expects to qualify. After shares are issued and the trade has been running for the required period, the company submits a compliance statement to HMRC and, once accepted, issues EIS3 certificates to investors. Without that certificate you cannot claim the reliefs on your tax return.
Q Can EIS relief be withdrawn after I have claimed it?
Yes. If the shares are sold within the minimum holding period, if you become connected with the company, if the company loses its qualifying status, or if certain value is received from the company, HMRC can withdraw some or all of the relief and recover the tax. This is why keeping good records and staying in contact with the company's advisers throughout the holding period matters.
If you're dealing with this kind of situation, a call with an experienced legal adviser can help you work out the right next step — from £89.

Sources

This guide is based on primary UK law and official guidance.

Brad Askew, Solicitor (non-practising)

Written & reviewed by

Brad Askew Solicitor (non-practising)

Brad is on the roll of solicitors of England & Wales but does not hold a practising certificate and does not provide legal advice. LegalDocuments.co.uk is not a law firm and does not provide regulated legal advice.

Full profile →SRA register ↗
Legal disclaimer
This article is for general information only. It is a tool to help you find your way — not legal advice, and not a substitute for speaking to a qualified adviser about your situation.