EIS Loss Relief Explained With a Worked Example 2026/27
If an EIS investment fails, you do not just lose your money — you can offset the net loss against your Income Tax or Capital Gains Tax, dramatically softening the downside. Here is how EIS loss relief is calculated in 2026/27.
Why EIS loss relief matters
EIS exists to channel capital into small, unproven, high-risk trading companies, and a meaningful proportion of EIS investments do fail. The scheme's loss relief is designed to significantly reduce the real financial pain of that failure for the investor, on top of the upfront 30% Income Tax relief they already received for taking the risk.
Income Tax Calculator
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Open Income Tax calculatorWorked example: a higher-rate taxpayer, total loss
Amara, a higher-rate (40%) taxpayer, invests £20,000 into EIS shares in an early-stage tech company and claims the full 30% Income Tax relief, worth £6,000, reducing her upfront cash cost to £14,000. Two years later, the company fails and the shares become worthless.
| Step | Amount |
|---|---|
| Amount invested | £20,000 |
| Income Tax relief claimed (30%) | £6,000 |
| Net cost after upfront relief | £14,000 |
| Shares become worthless — net loss for relief | £14,000 |
| Loss relief at Amara's 40% marginal rate | £5,600 |
| Final real cash loss | £14,000 - £5,600 = £8,400 |
Out of an original £20,000 invested, Amara's real economic loss after both reliefs is £8,400 — a meaningful reduction, though still a genuine loss, illustrating that EIS loss relief mitigates but does not eliminate downside risk.
Capital Gains Tax Calculator
Calculate Capital Gains Tax on property, shares and other assets for 2025/26.
Open Capital Gains Tax calculatorWorked example: partial recovery on sale
Ben invests £10,000 into a different EIS company, claims £3,000 of Income Tax relief (net cost £7,000), and the company is later sold in a distressed sale that returns him just £1,000.
| Step | Amount |
|---|---|
| Net cost after upfront relief | £7,000 |
| Proceeds from distressed sale | £1,000 |
| Net loss for relief | £7,000 - £1,000 = £6,000 |
| Loss relief at 40% marginal rate | £2,400 |
| Final real cash loss | £7,000 - £1,000 - £2,400 = £3,600 (versus £10,000 invested) |
Choosing Income Tax relief over Capital Gains Tax
An investor with large capital gains in the year might prefer to offset the EIS loss against those gains. But for most investors — particularly those with modest capital gains but substantial salary or dividend income — electing to set the loss against Income Tax for the year of loss or the prior year delivers relief sooner and at a rate that reflects their actual marginal Income Tax rate, which is usually the more valuable choice.
Frequently asked questions
What is EIS loss relief?
EIS loss relief lets an investor whose Enterprise Investment Scheme shares become worthless (or are sold at a loss) offset the net loss — after deducting the 30% Income Tax relief already claimed on the way in — against either their Income Tax bill (in the year of loss or the prior year) or their Capital Gains Tax. This substantially reduces the real economic downside of an EIS investment that fails, compared to an ordinary share investment.
How is the 'net loss' for EIS loss relief calculated?
You start with the amount invested, then deduct the Income Tax relief already received (30% of the investment, assuming full relief was claimed and not withdrawn), to arrive at the net cost. If the shares become worthless, the net loss available for relief equals this net cost; if sold for some residual value, the net loss is the net cost minus whatever was recovered on sale.
Can I offset an EIS loss against my Income Tax instead of Capital Gains Tax?
Yes — this is one of EIS's most valuable features. Instead of only offsetting the loss against capital gains (which you may not have enough of to use it fully), you can elect to set the net loss against your general Income Tax liability for the year of the loss or the previous tax year, which is often far more valuable for an investor with substantial employment or dividend income and modest capital gains.
Do I need the shares to become completely worthless to claim loss relief?
No — you can claim relief either when shares are formally disposed of at a loss (including a genuine sale for a nominal sum) or by making a 'negligible value claim' to HMRC if the company has failed or ceased trading but you have not formally sold the shares, effectively treating the shares as disposed of for tax purposes at that point.
What happens to the 30% Income Tax relief I already claimed if the investment fails?
You generally keep the 30% Income Tax relief you claimed when you originally invested (provided you held the shares for at least three years or the company failed genuinely, rather than you disposing of them early for other reasons) — it is not clawed back purely because the investment subsequently failed. This is precisely why the loss relief calculation nets off the relief already given, since your true economic loss is already reduced by it.
Does EIS loss relief only apply to EIS, or does it cover SEIS too?
The same mechanism applies to Seed Enterprise Investment Scheme (SEIS) shares, with the net loss calculated after deducting the (higher) 50% SEIS Income Tax relief already claimed, since SEIS shares are riskier early-stage investments with a correspondingly larger upfront relief to net off against any loss.
Is there a time limit for claiming EIS loss relief?
Yes — a claim to set the loss against Income Tax must generally be made within specific time limits from the end of the tax year in which the loss arose (broadly within one to two years, depending on the type of claim), so it is worth acting promptly once a company has clearly failed rather than waiting indefinitely.
How does the combined 30% relief and loss relief change my real-world risk?
Combining upfront Income Tax relief with downside loss relief means a higher-rate taxpayer who invests £10,000 in EIS shares that later become entirely worthless can, after both reliefs, be left with a real cash loss far smaller than £10,000 — often in the region of a few thousand pounds rather than the full amount, which is precisely the risk-sharing design of the scheme for investing in unproven early-stage companies.
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