Investment Tax Guide · 2026/27

Enterprise Investment Scheme (EIS) Guide 2026/27— Tax Relief and Rules Explained

The Enterprise Investment Scheme (EIS) is one of the UK government's most generous investment incentives. It gives investors 30% Income Tax relief, 0% CGT on exits after 3 years, CGT deferral on reinvested gains, and Inheritance Tax exemptionafter 2 years — all in exchange for investing in qualifying small UK companies. This guide explains every relief, the qualifying rules, and how to use EIS strategically in 2026/27.

Important: EIS investments are high-risk. The tax reliefs are designed to compensate for the risk of investing in early-stage companies. Capital is at risk and past performance is not a guide to future returns.

Last updated: 6 June 2026Last reviewed: 6 June 2026How we verify

How EIS Works: The Five Tax Reliefs

EIS offers five distinct tax reliefs, each targeting a different tax. An investor can potentially use all five on a single qualifying investment:

Relief	Rate/Benefit	Condition
Income Tax relief	30% of investment (up to £1m or £2m KIC)	Hold shares 3+ years
CGT disposal exemption	0% CGT on sale proceeds	Hold 3+ years, IT relief claimed
CGT deferral relief	Defer existing gain until EIS exit	Invest within 1yr before / 3yrs after disposal
IHT Business Property Relief	100% IHT exemption on value	Hold 2+ years at death
Loss relief	Net loss offset against income or CGT	Investment loss (after IT relief received)

Income Tax Relief: The Core Benefit

The headline EIS relief is 30% Income Tax relief on the amount invested. This is given as a credit against your Income Tax liability for the tax year in which the shares are issued.

Annual limits:

General EIS: £1,000,000 per investor per tax year (max relief = £300,000)
Knowledge Intensive Companies: £2,000,000 per investor per tax year (max relief = £600,000)

The relief reduces your Income Tax bill directly. If your tax bill is £50,000 and you invest £100,000 in EIS, you receive £30,000 relief, reducing your bill to £20,000. You cannot get a refund if relief exceeds your tax liability — you can only use as much as you have tax to offset.

You can also carry backEIS subscriptions to the previous tax year, which is useful if you had higher income (and higher tax) in that year. This is done on the "EIS3" claim form attached to your Self Assessment return.

Qualifying Company Criteria

Not every startup qualifies for EIS. The company must meet a detailed set of conditions at the time of investment and throughout the 3-year qualifying period:

Unquoted: Not listed on the main London Stock Exchange (AIM shares do qualify)
UK connection: Must be UK-incorporated or have a UK permanent establishment carrying on a qualifying trade
Qualifying trade: Must be a genuine trading company. Excluded activities include property development, financial services, leasing, farming, hotels and nursing homes
Gross assets: Under £15 million before the EIS investment and under £16 million immediately after
Employees: Fewer than 250 full-time equivalents
Age: The first commercial sale must have occurred within the past 7 years (10 years for KICs)
Not in difficulty: Must not be an undertaking in financial difficulty under EU state aid rules
Advance assurance: Most EIS fundraises are preceded by HMRC advance assurance confirming eligibility

Individual investors must also meet conditions: they cannot be connected with the company (not an employee, director, or substantial shareholder at the time of investment, with exceptions for first-time paid directors) and must not already hold more than 30% of the shares.

CGT Disposal Exemption

If you hold EIS shares for at least 3 years from the date of issue (or from the date the company commenced trading, if later), any gain on disposal is completely exempt from CGT. There is no cap on the exempt gain.

Example:You invest £100,000 in an EIS company in April 2023. You claim £30,000 Income Tax relief. In June 2026 (3+ years later), the company is acquired for £500,000. Your 5x gain of £400,000 is entirely exempt from CGT. Combined with the £30,000 IT relief, your effective return on a £70,000 net investment is £500,000 — entirely tax-free on the exit (though you pay tax elsewhere if the deferred gain is triggered).

The CGT exemption is forfeited if the Income Tax relief is withdrawn for any reason. Always retain evidence that the qualifying conditions were met throughout the 3-year period.

CGT Deferral Relief

CGT deferral relief is separate from the CGT disposal exemption. It allows you to defer an existing capital gain by reinvesting it in EIS shares. The deferred gain "freezes" until you dispose of the EIS shares.

Key rules:

The original gain can be on any asset (shares, property, business, etc.)
You must invest in EIS shares within 1 year before or 3 years after the disposal date
No minimum holding period is required for deferral (unlike the 3-year rule for the disposal exemption)
The deferred gain revives when you dispose of the EIS shares, or when the EIS conditions are broken
Deferral relief is available even if you do not claim Income Tax relief (e.g. non-UK residents cannot claim IT relief but can claim deferral)

When the deferred gain revives, it is charged at the CGT rates applicable at that time, not when the original disposal occurred. This can be advantageous or disadvantageous depending on rate changes.

IHT Business Property Relief

EIS-qualifying shares are unquoted shares in trading companies — the primary category for Business Property Relief (BPR) under IHTA 1984. After a minimum holding period of 2 years, EIS shares qualify for 100% BPR, making them completely exempt from Inheritance Tax on death (or on lifetime gifts to non-exempt transferees).

This combination makes EIS particularly attractive for estate planning:

Invest within 2 years of death and the shares are BPR-exempt
No 7-year clock (as with outright gifts)
The underlying investment also generates IT and CGT reliefs while alive

Note: BPR is not guaranteed and HMRC can challenge it. The company must remain a qualifying trading company at the time of death. Cash-rich companies or those that have diversified into investment activities may lose BPR qualification.

EIS vs SEIS: Which Is Better?

Feature	EIS	SEIS
IT relief rate	30%	50%
Max investment per year	£1m (£2m KIC)	£200,000
Company age limit	7 years (10 KIC)	3 years
Company gross assets	Under £15m	Under £350,000
Max employees	250	25
CGT reinvestment relief	Deferral only	50% exemption on reinvested gain
IHT BPR	Yes (2 years)	Yes (2 years)

SEIS is for truly seed-stage companies with minimal assets and revenues. EIS covers a broader range from early-stage to growth-stage companies. Many companies raise SEIS first, then EIS as they grow. A single company can issue SEIS shares (up to £250,000 raised) and then follow with EIS shares.

EIS Funds vs Direct Investment

EIS investors can invest directly into a single company or pool their money through an EIS fund. Each approach has different risk and administrative profiles:

Direct investment

You choose the company, negotiate terms, and receive EIS3 certificates directly. The tax reliefs are available when the shares are issued. Concentration risk is high (one company), but so is the potential upside. Suitable for experienced angel investors or those with sector knowledge.

EIS fund

A fund manager deploys capital across a portfolio of EIS companies, reducing concentration risk. HMRC-approved "approved knowledge-intensive fund" vehicles can defer the IT relief claim until investment is deployed (up to 2 years). Management fees of 1.5%–3% per year typically apply. Most EIS funds have minimum investment of £10,000–£25,000.

FAQs

Frequently Asked Questions

What is the Income Tax relief rate for EIS investments?

You can claim 30% Income Tax relief on the amount you invest in qualifying EIS shares, up to £1 million per tax year (or £2 million if the excess is invested in Knowledge Intensive Companies). The relief is given as a reduction in your Income Tax liability for the year you invest, or you can elect to carry it back to the previous tax year. You must have sufficient Income Tax liability to use the relief.

What happens to EIS tax relief if I sell the shares early?

EIS Income Tax relief is clawed back (cancelled) if you dispose of the shares within 3 years of issue, or if the company ceases to qualify within 3 years. The amount clawed back is the proportion of the original investment that was within the 3-year period. If you sell after 3 years, the relief is fully retained and the gain on disposal is completely exempt from Capital Gains Tax.

What are the qualifying company conditions for EIS?

The company must: be unquoted (not listed on the main stock market, though AIM qualifies); be a trading company carrying on a qualifying trade; have gross assets of £15 million or less before the investment and £16 million or less immediately after; have fewer than 250 full-time equivalent employees; be less than 7 years old (or less than 10 years for Knowledge Intensive Companies); and not be in financial difficulty. The company must receive EIS advance assurance from HMRC before raising funds.

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How does CGT disposal relief work under EIS?

If you have held EIS shares for at least 3 years and the company has remained qualifying throughout, any capital gain on disposal is completely exempt from CGT. There is no upper limit on the gain that can be exempt. This is the most generous CGT relief available to individual investors. The shares must have been subscribed for (new shares) rather than purchased on a secondary market.

What is EIS CGT deferral relief and how is it different from CGT disposal relief?

CGT deferral relief lets you defer an existing capital gain by reinvesting it in EIS shares. The gain can be from any asset (not just shares) and must be reinvested within 1 year before or 3 years after the original disposal. The deferred gain becomes chargeable when you dispose of the EIS shares (or when the deferral conditions are otherwise broken). Unlike disposal relief, deferral relief has no 3-year minimum holding period and can be used by non-UK residents.

Does EIS qualify for Inheritance Tax relief?

Yes. EIS shares qualify for Business Property Relief (BPR) once held for 2 years, making them completely exempt from Inheritance Tax. This is because EIS qualifying companies are unquoted trading companies, which are the core category for BPR. If you hold EIS shares at death (and have held them for 2+ years), the value is excluded from your estate. Note: BPR relief is not guaranteed and can be lost if the company fails the trading conditions.

What is EIS loss relief and how does it work?

If your EIS investment becomes worthless or you sell at a loss, you can claim loss relief. After deducting the original 30% Income Tax relief received, the remaining loss can be set against either: (1) Income Tax (set against income in the year of loss or carried back 1 year) or (2) Capital Gains Tax in the same year. For a 45% taxpayer who invested £10,000 (getting £3,000 IT relief), losing the whole investment means a net loss of £7,000, which at 45% income offset = £3,150 further relief. Total protection = £6,150 of the original £10,000.

What is a Knowledge Intensive Company (KIC) and why does it matter for EIS?

A Knowledge Intensive Company (KIC) is a company with substantial R&D expenditure (at least 10-15% of total costs) or significant intellectual property, and more than 20 full-time equivalent employees. KICs benefit from higher EIS limits: the company can raise up to £20 million in total risk finance (vs £12 million for standard EIS), and investors can put up to £2 million per year into KIC EIS shares (vs £1 million for standard EIS). KICs can also be up to 10 years old at first EIS investment.

What is the difference between EIS and SEIS?

SEIS (Seed Enterprise Investment Scheme) is designed for very early-stage companies. Key differences: SEIS gives 50% Income Tax relief (vs 30% for EIS); SEIS is limited to £200,000 investment per year per investor (vs £1 million for EIS); the company must have been trading for less than 3 years (vs 7 for EIS); company gross assets must be under £350,000 (vs £15 million); and the company can have at most 25 employees. SEIS also offers CGT reinvestment relief (50% of a SEIS gain can be exempt if reinvested in another SEIS).

Are EIS funds the same as direct EIS investments?

No. An EIS fund pools money from multiple investors and deploys it across a portfolio of EIS-qualifying companies. You receive EIS3 certificates for each underlying company and can claim IT relief in the same way as direct investments. EIS funds reduce the risk of investing in a single company but add a management fee layer and often a deal flow delay. Approved EIS funds must deploy capital within a set period; unapproved funds have more flexibility. Many EIS funds focus on specific sectors (e.g. technology, film, renewable energy).

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Sources

About the author

James Morgan

Property & Mortgage Writer

James Morgan has been writing about UK property and mortgages since 2016. He covers the full purchase journey — affordability checks, mortgage product comparison, the deposit and loan-to-value puzzle, stamp duty (SDLT in England and Northern Ireland, LBTT in Scotland, LTT in Wales), first-time buyer reliefs, conveyancing costs, and what to expect at completion. James also writes on the landlord side: buy-to-let mortgages, the 3% additional-property SDLT surcharge, Section 24 finance-cost restriction, rental yield maths, and the practical realities of being a small private landlord in the post-2017 tax regime. He has a particular interest in the remortgage decision — when to switch product, the trade-off between rate and arrangement fee, early repayment charges, and how to read a mortgage offer document. James's mortgage worked examples are built up from the underlying amortisation schedule, not borrowed from comparison sites, and stamp-duty figures are verified band-by-band against the HMRC SDLT calculator. He writes to CalcHub's editorial standards, with primary-source citations to HMRC, Revenue Scotland and the Welsh Revenue Authority, and clear disclosure that CalcHub does not sell mortgages or take affiliate commission on regulated mortgage products.

Property journalist since 2016
UK mortgage and stamp-duty specialism (SDLT, LBTT, LTT)
Writes to CalcHub editorial standards (primary-source citation, annual review)

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Disclaimer:EIS investments carry high risk. Tax reliefs depend on both the investor and company meeting HMRC's conditions throughout the qualifying period, which cannot be guaranteed. Always seek independent financial and tax advice before investing.