What Are SEIS and EIS?
The Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) are government schemes designed to encourage investment in early-stage UK companies. In return for the risk of investing in small, unquoted businesses, investors receive generous tax reliefs.
These schemes offer three layers of tax benefit: income tax relief, capital gains advantages, and loss relief — making them among the most tax-efficient investments available to UK taxpayers.
SEIS vs EIS at a Glance
| Feature | SEIS | EIS |
|---|---|---|
| Income tax relief | 50% | 30% |
| Maximum annual investment | £200,000 | £1,000,000 (£2M for knowledge-intensive) |
| Maximum income tax relief | £100,000 | £300,000 (£600,000 for KI) |
| CGT exemption on gains | Yes — full exemption | No — but CGT deferral available |
| CGT reinvestment relief | 50% relief on gains reinvested | Deferral of gains until shares disposed |
| Loss relief | Yes | Yes |
| Minimum holding period | 3 years | 3 years |
| Company age limit | Less than 3 years old | Less than 7 years (10 for KI) |
| Maximum employees | Fewer than 25 | Fewer than 250 |
| Gross assets limit | Up to £350,000 | Up to £15 million |
| Carry-back | 1 year | 1 year |
Income Tax Relief
The headline benefit. When you invest in qualifying shares:
- SEIS: You receive a 50% income tax reduction on the amount invested — invest £100,000 and your income tax bill drops by £50,000
- EIS: You receive a 30% income tax reduction — invest £100,000 and save £30,000
The relief is claimed against your income tax liability for the year of investment (or you can carry back to the previous year). It cannot reduce your tax bill below zero — you need sufficient income tax liability to absorb the relief.
Carry-back
Both schemes allow you to elect for the investment to be treated as if made in the previous tax year. This is useful if your income (and therefore tax liability) was higher last year, or if you’ve already used up your current year’s tax capacity.
Capital Gains Benefits
SEIS — CGT exemption
Gains on SEIS shares held for at least 3 years are completely exempt from Capital Gains Tax. This is an outright exemption, not a deferral.
Additionally, if you reinvest a chargeable gain into SEIS shares, 50% of the reinvested gain is exempt from CGT — regardless of whether the SEIS investment itself succeeds.
EIS — CGT deferral
EIS doesn’t exempt gains, but it allows you to defer Capital Gains Tax on gains reinvested into EIS shares. The deferred gain becomes payable when you dispose of the EIS shares (unless you reinvest into another qualifying scheme).
The gain being deferred can be from any asset — property, shares, business assets — and there’s no time limit on how long the deferral lasts.
Loss Relief
If your SEIS or EIS investment fails (the company goes bust or the shares become worthless), you can claim loss relief against your income tax. The loss is the amount invested minus any income tax relief already received.
Example: You invest £10,000 in SEIS shares (receiving £5,000 income tax relief). The company fails and shares become worthless.
- Allowable loss: £10,000 − £5,000 = £5,000
- Loss relief at your marginal rate (40%): £5,000 × 40% = £2,000
- Total tax relief received: £5,000 + £2,000 = £7,000
- Net cost of £10,000 investment: just £3,000
This “downside protection” significantly reduces the maximum loss on a failed investment.
Worked Example: SEIS Investment
David, a 40% higher-rate taxpayer, invests £50,000 in a qualifying SEIS company.
Income tax relief (immediate)
£50,000 × 50% = £25,000 reduction in income tax
If the investment doubles (shares sold after 3+ years)
| Item | Amount |
|---|---|
| Shares sold for | £100,000 |
| Capital gain | £50,000 |
| CGT payable | £0 (SEIS exemption) |
| Total return | £100,000 + £25,000 tax relief = £125,000 |
| On a £50,000 investment | That’s a 150% return (including tax benefits) |
If the company fails completely
| Item | Amount |
|---|---|
| Income tax relief already received | £25,000 |
| Loss relief: (£50,000 − £25,000) × 40% | £10,000 |
| Total tax benefit | £35,000 |
| Net cost of failure | £50,000 − £35,000 = £15,000 |
David’s maximum downside on a £50,000 investment is £15,000 — a 70% reduction in risk through tax reliefs.
Qualifying Conditions
Not every company qualifies. Key requirements include:
The company must:
- Be UK-based (permanent establishment in the UK)
- Be unquoted (not listed on a main stock exchange; AIM is acceptable)
- Carry on a qualifying trade (most trades qualify, but property development, financial activities, and legal/accounting services are excluded)
- Not be controlled by another company
- Use the investment for a qualifying business activity within 2 years
The investor must:
- Not be connected to the company (no more than 30% shareholding, not an employee — though unpaid directors are allowed for EIS)
- Hold shares for at least 3 years to retain relief
- Subscribe for new ordinary shares (not purchased from existing shareholders)
Risk Warning
SEIS and EIS investments are in early-stage, unquoted companies — inherently high-risk. Tax relief should not be the primary reason for investing. Consider:
- Many startups fail — you could lose most or all of your investment
- Shares are illiquid — there’s no public market to sell them
- The 3-year holding period means your capital is locked up
- Tax rules can change — reliefs may be reduced or withdrawn
Always invest based on the commercial merits of the opportunity, with tax relief as a bonus rather than the motivation.
Key Takeaway
SEIS and EIS offer some of the most generous tax reliefs available to UK investors: up to 50% income tax relief (SEIS) or 30% (EIS), CGT exemption or deferral, and loss relief that limits your downside. For higher-rate taxpayers willing to accept the risks of early-stage investing, these schemes can dramatically improve risk-adjusted returns.
Use the SEIS/EIS tax relief calculator to model the tax benefits for your specific investment and tax rate.