At a glance

The Enterprise Investment Scheme (EIS) provides tax incentives in the form of a variety of income tax and capital gains tax reliefs to investors who invest in smaller, unquoted, trading companies.

  • The primary tax relief takes the form of a reduction in Income Tax at a flat rate of the cost of new shares.
  • Tax relief increased from 20% to 30% on 6 April 2011.
  • There is no minimum amount an investor can invest in any one company (prior to 2012/13 this was £500); however there is a maximum investment of up to £1 million from 2012/13 (£500,000 2008/09 - 2011/12).
    • In the Autumn Budget 2017, the Chancellor announced an additional £1 million annual limit from 6 April 2018, so long as at least £1 million is invested in “knowledge intensive” companies
  • The maximum amount of investment that a qualifying company can receivein any given twelve months is limited to £5 million.
    • In the Autumn Budget 2017, the Chancellor announced this would be increased to £10 million for “knowledge intensive” companies from 6 April 2018.

The Finance Act 2012 introduced the Seed Enterprise Investment Scheme (SEIS): a scheme like EIS but for start-ups. 

From 6 April 2015

  • Part 6 of ITA 2007 extends the list of excluded activities to include companies (excluding community organisations) where the trade consists of the subsidised generation of electricity involving:
    • Contracts for difference and
    • Renewable sources where anaerobic or hydroelectric power is involved.
  • CGT Entrepreneurs' Relief will now be allowed where a qualifying gain, which has been deferred into investments qualifying for Enterprise Investment Relief (EIS) and Social Investment Tax Relief (SITR), is subsequently realised.
  • The requirement that 70% of SEIS money has to be spent before EIS or VCT shares or securities can be issued is abolished.

  • SITR investments now count as ‘relevant investments when considering the £5 million annual limit for the company.

From 18 November 2015

The following changes take effect from 18 November 2015 under Finance (no 2) Act 2015:

  • A lifetime limit for the issuing company will be introduced to cap the maximum amount it can raise under the venture capital schemes. This limit will be £12 million for most companies, but there will be an enhanced £20 million for ‘knowledge intensive’ companies.
  • EIS relief will not be available for share issues in companies which have been trading for more than seven years (ten for knowledge intensive companies), unless condition A, B or C is met:
    • Condition A: there was a previous issue of shares under EIS/VCT/SEIS in the first seven years of trade (ten for knowledge intensive companies), and the money raised is used on the same qualifying business activities.
    • Condition B: the company is entering a new product and/or geographic market, the amount raised is 50% or more of the average turnover for the previous five years, and all of the money raised is used for the new activity.
    • Condition C: the company has previously met condition B, the money is used for the same activities as previously, and the need for follow on funding was anticipated when the previous investment was planned.
  • The maximum number of employees will increase to 499 for ‘knowledge intensive’ companies.
  • A restriction on existing shareholders claiming relief will be introduced, and going forward an existing shareholder will only be able to claim relief if all of the existing shares:
    • Were issued under EIS, SEIS or SITR
    • Are subscriber shares (i.e. the original shares issued on incorporation)
  • EIS/VCT will no longer be able to be used to fund the acquisition of an existing company or trade. Money received from the investment must be used to promote the growth and development of the business.
  • A 'sunset' clause is introduced so income tax relief can only be obtained in respect of shares issued before 6 April 2025.

From 30 November 2015

A further amendment was made to the Finance Bill during its passage through parliament to include the following as an excluded activity for shares issued on or after 30 November 2015:

  • Making reserve electricity generating capacity available, for example through contracted arrangements such as a Capacity Market agreement or Short Term Operating Reserve contract.

From 6 April 2016

  • All energy generation activities are excluded activities for the purpose of all tax-advantaged venture capital schemes: EIS, VCT, SEIS and SITR.  


There are a number of potential tax reliefs associated with EIS.

Income Tax Relief

  • Individuals who subscribe for shares in an EIS qualifying company will receive tax relief of 30% (20% for years up to 2010/11) on the cost of the shares, which is offset against the individual’s Income Tax liability for the year in which the investment was made.
  • It is possible to ‘carry back’ all or part of the investment to the preceding tax year as long as the limit for relief is not exceeded for that year.
  • An individual may carry-back current year EIS investments to the previous year, provided that the limit in the previous year is not exceeded. The effect being that a subscription of £2 million EIS shares may be made in 2016/17 with a carry back of £1 million to 2015/16. 
  • An individual is able to reduce his tax liability to zero through EIS relief, allowing the taxpayer to claim back any repayable tax deducted at source, such as bank interest or PAYE.

Qualifying conditions

Note that there are several important qualifying conditions attached with EIS Income Tax relief:

1. Restriction for connected individuals

Between the period commencing two years before the issue of EIS shares and the later of three years after the investment was made and the date the company commences trading, an individual investor cannot be ‘connected’ with the qualifying EIS company. He or she cannot:

  • Be remunerated as a company employee, partner, or director (unless an unremunerated director, or potentially a paid ‘business angel’ investor), or
  • Directly or indirectly possess or be entitled to acquire more than:
      • 30% of the ordinary share capital, or
      • 30% of voting rights, or
      • 30% of the rights to assets on a winding up

Of the company or any subsidiary.

These rules are subject to exceptions for unpaid directors, and paid business angel investors (see s167-s169 ITA 2007), which broadly permit payment for services as a director once the shares have been issued. It is advisable to become a director only once shares have been issued. Any director involved in the company's trade prior to issue is likely to be connected and relief will be denied.

2. Three year holding period

The individual must retain the shares for a minimum of three years (possibly up to five if the trade commenced after the share issue date). If the shares are disposed of within this minimum holding period, the relief will be clawed back (unless the disposal was to a spouse or civil partner, in which case the spouse or civil partner is deemed to have subscribed for them). See note on ‘Relief Clawback.’

3. Investing via partnerships

Investors who invest in start-ups or other small companies through a partnership structure are not eligible for EIS relief.

Capital Gains Tax Exemption

  • There will be no CGT charged on any gain of EIS shares disposed after the minimum holding period on which Income Tax relief was given and not withdrawn.

Capital Gains Tax Deferral Relief

  • CGT can be deferred if capital proceeds are invested in EIS shares - even if the investor is connected (see above). The gain can be realised from any asset but the share investment must take place in the period of one year before or three years after the disposal of the asset. The minimum or maximum EIS investments do not apply to deferral relief.
  • Gains realised on or after 3 December 2014 which qualified for Entrepreneurs' Relief may be reinvested in EIS (or Social Investment Tax relief) and will still remain eligible for ER when the deferred gain is realised.

Top tip:

  • It is important to claim ER the first time that any part of the deferred gain comes back into charge, even if there is no tax to pay due to losses or the annual exemption.  If relief is not claimed on the first part of the gain to be realised then it cannot be claimed later in respect of any of the remaining gain.

Loss Relief

  • If EIS shares are disposed of at a loss at any time, the loss (after any Income Tax relief has been taken into account) can be offset against income for that year and the previous year instead of being offset against capital gains.

Relief Clawback

The clawback of relief works in one of several ways depending on the nature of the disposal.

  • Where the individual gifts the shares within three years, all of the original relief obtained will be withdrawn and an assessment made in respect of the relief given.
  • Where the individual sells the shares within three years for a profit, again the original relief obtained will be withdrawn and an assessment made in respect of the relief given.
  • Where the individual sells the shares for a loss the relief clawed back will be the proceeds of the sale multiplied by 30% (20% if the investment was made before 6 April 2011).

Qualifying companies

To qualify for the EIS scheme companies must fulfil certain criteria. The issuing company must be:

  • A trading company: most trades qualify but ‘excluding activities’ include property development, farming and market gardening, coal and steel production, hotel and nursing home operation and management, and many financial activities. From 6 April 2015 the list includes subsidised generation of electricity involving a) contracts for difference or b) renewable sources where anaerobic or hydroelectric power is involved.
  • Unquoted at the time of the share issue. This means the company cannot be listed on the London Stock Exchange or any other recognised stock exchange. The Alternative Investment Market (AIM) is not treated as a recognised market under EIS rules.
  • A ‘small company’. Gross assets cannot exceed £15 million (£7 million before April 2012) before the share issue, or £16 million (£8 million before April 2012) immediately after.
  • A company that employs fewer than 250 (50 before April 2012) full-time employees at the time of the share issue.
  • Carrying out the trade for which the money was raised for at least four months before an investor is eligible for EIS relief.

EIS, takeovers and management buy-outs

In the past HMRC held the general view that a management buyout cannot qualify for EIS relief due to the prior involvement of the acquiring managers in the trade whose ownership is transferred in the buyout, a recent case indicates that there may be ways around this, see EIS (Subscriber Guide).

Section 247 ITA 2007 provides continuity of EIS relief when an issuing company is acquired by a new company: provided that all the qualifying conditions are met.

Disqualifying activities

All money raised by the issue of relevant shares must be employed wholly for the purpose of the qualifying business activity within a time limit of two years, see EIS (Subscriber Guide) for recent case decisions.

Small Print

The rules on EIS are found in Part 5 of the 2007 Income Tax Act. It is worth the read; many claims to EIS relief fail on what might outwardly appear to be minor technical issues.

Contact Details

The EIS is administered by HMRC’s Small Company Enterprise Centre (SCEC)

Small Company Enterprise Centre Admin Team 
PO Box 3900 
G70 6AA 

Telephone: 03000 588907


Further advice may be sought from the Enterprise Investment Scheme Association (EISA)



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