Deepbridge Academy EIS Knowledge Hub

What is EIS?

Enterprise Investment Scheme (EIS) is a range of tax reliefs the Government provides when people invest in certain small to medium-sized early-stage companies.
Tax reliefs are designed to encourage specific behaviours. For example, ISAs promote regular saving, while pension tax relief encourages retirement planning. EIS reliefs encourage investment in higher-risk companies by helping to offset some of the additional risk.
The EIS was introduced in 1994 and has been a huge success story for the UK. It has played a key role in creating one of the best places to start and grow a business in the world. Consistently supported by all political parties, the EIS ‘sunset clause’ has recently been extended until 2035. More than £30bn has been invested through the Enterprise Investment Scheme, supporting more than 50,000 UK small and growing businesses (Beauhurst EIS 30th Anniversary Report, 2024).
Early-stage companies can present compelling investment opportunities by developing innovative technologies, creating new markets or transforming established industries. While successful businesses may generate substantial growth, they also carry a greater risk of failure than established companies, and investors may have limited control over when they can realise their investment.
The Government confirmed the 10-year extension of the EIS sunset clause on 3 September 2024, extending the scheme from 6 April 2025 to 5 April 2035 and recognising its importance to the UK start-up sector.

How EIS works

Investments have to be made into the shares as a subscription for a new issue of shares in EIS-qualifying companies. Specialist managers can identify EIS qualifying companies for you, or you may find one yourself.

EIS investments provide qualifying companies with capital they need to invest in business growth and employment. Investors should expect to remain invested for a meaningful amount of time, typically 5 years or more, while the company pursues its growth strategy. Exits typically arise for all investors as a group, if the company reaches a size where it finds a buyer or lists.

Assuming certain conditions are met by investors and the EIS companies (at the time of the investment and for a period of at least three years thereafter), money invested in an EIS qualifying company attracts the following headline benefits:

30% upfront relief: Income tax relief is available at a maximum rate of 30% on EIS investments of up to £1 million in any tax year, with further income tax relief being available on investments of up to an additional £1 million in any tax year in respect of knowledge-intensive companies. 30% of the amount invested can be claimed back against income tax.
No capital gains tax paid on growth: EIS companies have the potential to grow significantly in value, sometimes to multiples of the initial amount invested. This growth is returned tax-free, which can represent a material benefit.
Relief on losses: when an EIS company fails, the realised loss (net of any 30% income tax relief retained) can potentially be offset against income (as opposed to ‘normal’ losses arising on shares which are usually only available to offset against other capital gains) . This is a really important part of how the risk of investing in EIS companies is mitigated, and for additional rate tax payers can be worth an extra 31.5% of tax relief in addition to the 30% upfront income tax relief claimed.

In the 2024 Autumn Budget, changes to the Business Property Relief (‘BPR’) rules were announced which will impact the IHT relief available from 6th April 2026 onwards. Whilst the relevant legislation has not yet been finalised and/or adopted, it was announced that after 6th April 2026, up to £2.5m of BPR-qualifying assets will qualify for 100% IHT relief, with any assets over this threshold qualifying for a 50% reduction in the rate of IHT payable.

What qualifies for EIS?

The Government designed EIS to support high-growth, UK-based companies that will shape the future. To ensure businesses receiving funding align with these objectives, they must adhere to specific criteria, which we will explore in this section. If a company does not qualify or loses qualifying status, tax reliefs claimed by investors may be withdrawn later. To avoid this, fund managers may seek Advanced Assurance at the outset and regularly review the status of each company within the portfolio. This is not mandatory, but it does help provide confidence that the company is qualifying.

Unquoted

Companies qualifying for EIS funding are typically privately owned (although they can also be listed on the Alternative Investment Market) and must not be in any financial difficulty.

Actively trading and ‘Risk to Capital’

Companies must be actively trading and operating in a qualifying trade (excluded businesses include asset-backed, low-risk activities such as dealing in land, farming, residential care homes, and energy generation). There must be a ‘risk to capital’ as the true spirit of EIS is to support innovative, high-growth businesses; investments cannot be structured to provide a low-risk, and therefore typically low-return, investment.

The capital raised must be used to deliver growth, such as increasing revenue, customer base, and number of employees. They should not be used to maintain the business (e.g. covering pre-existing day-to-day spending).

Size and use of funding

The money invested must be used to buy new shares, not existing ones.
They must be relatively small at the investment point (under 250 employees), as the Government aims to use this funding to support high growth.
You can receive investment under the Enterprise Investment Scheme if it’s within seven years of each company’s first commercial sale (maximum ten years for a Knowledge-Intensive company).
Any funds must be used within 24 months, which is incredibly helpful for start-ups because it motivates them to raise a reasonable amount and dedicate the funds to an immediate business purpose.
Over a year, funding mustn’t exceed £10 million (£20 million for knowledge-intensive companies).
Its lifetime value must not exceed £24 million (£40 million for knowledge-intensive companies).

UK Based

To qualify for EIS funding, a company must be UK-based and carry out a qualifying trade within the UK. This requirement ensures that the scheme supports the growth and development of a UK business and contributes to the UK economy (via taxes and employment).

Businesses excluded from EIS funding

The government designed EIS to focus funding where needed most, and business sectors that qualify for EIS funding can change over time. Before the Patient Capital Review in 2017, the EIS market was abundant, with funds invested in safe, asset-backed companies, with the emphasis being on tax reliefs only. This was never in line with the true spirit of EIS, and these welcome changes allowed EIS Fund Managers to use funding to back companies with ambitious growth plans. As a result of these changes, HMRC confirmed that the following activities are currently excluded from EIS funding:

Dealing with land, property development, and leasing.
Dealing with goods other than regular retail or wholesale distribution.
Dealing with financial instruments, banking, insurance, hire purchases, money lending, and other financial activities.
Receipt of royalties or licence fees.
Legal and accounting services.

Common industries that are discounted include:

Farming and Market Gardening
Forestry
Operating or managing hotels or residential care homes
Coal production, steel production and shipbuilding
All energy generation activities

Key features of EIS

Income Tax relief	30% (carry back available)
Minimum term	3 Years¹
Maximum Investment (for the investor)	£2m, as long as £1m in ‘Knowledge Intensive’ companies²
Annual funding limit (for the company)	£10 million for non-Knowledge Intensive companies. £20 million for Knowledge Intensive.²
Carry Back	Yes³
Dividends	Taxed
Growth	Tax Exempt
CGT deferral	Yes – No Maximum
IHT mitigation (BR)	After 2 Years
Loss relief	Yes
Access within holding period	None

¹From date shares are issued or trading commences, whichever is later.
²Knowledge Intensive companies have a higher lifetime funding limit of £40m. For more information on what qualifies for Knowledge Intensive, see here.
³Provided the limit for the previous year hasn’t been exceeded.

Criteria to meet Knowledge Intensive qualifications

According to the latest UK guidance, companies may qualify as Knowledge-Intensive if they carry out research, development, or innovation when they issue shares. In return for meeting additional criteria, HMRC allows more lenient rules and relaxed funding limits.

See the requirements rules below for more information:

	Operating costs condition	Innovation condition	Skilled employee condition
Description	A substantial portion of companies’ resources must be allocated to research and development activities, which aim to innovate and create new products, technologies or processes.	Knowledge-Intensive companies typically focus on creating, developing and owning intellectual property such as patents.	Knowledge-Intensive companies must employ a highly skilled workforce directly involved in research and innovation.
Government purpose	To support companies that will shape the future of the UK. These companies invent new products to propel the UK forward or resolve existing problems.	To support unique companies that create a new marketplace or operate in an existing one.	To prioritise companies that employ highly skilled, highly paid experts. In return, the government will receive increased Corporation Tax and Income Tax paid by employees. It may be argued that companies that hire highly skilled employees are more likely to succeed.
Example	Life Sciences companies engaging in clinical trials or new product development support the NHS by reducing costs or improving efficiency.	Technology companies are developing new patented products that support financial systems, transport and technology.	Life Sciences companies hire skilled surgeons, clinicians or experts to create new medicines or technologies.
Criteria	Meets one or both of the following: In any one or more of the three previous years, at least 15% of the relevant operating costs* was spent on research, development or innovation; or In the previous three years, at least 10% of the relevant operating costs* were spent on research, development or innovation. * Where the issuing company is a parent company, the operating costs of the parent and qualifying subsidiaries are aggregated.	Plus: Meets both of the following: The company, or a subsidiary company within the group, is engaged in intellectual property creation at the date of issue; and It is reasonable to assume that in 10 years, the exploitation or utilisation of the intellectual property will form the more significant part of the company’s business, or the business of the group taken together.	And: At least 20% of the full-time equivalent employees are “skilled employees”. “Skilled employees” are those with a master’s degree or above who are engaged directly in research, development or innovation activities.

For more information, please see the government website.

EIS Tax reliefs explained

Subject to certain conditions being met by the company and the investor at the time of the investment and for a minimum period thereafter, EIS investments can qualify for a range of tax reliefs. These are reliefs that the Government has put in place to mitigate some of the risks of investing in small, early-stage companies, and to incentivise investment in the types of companies that have the potential to become important, sector-defining businesses of the future.

Summary of five tax reliefs:

The following 3 reliefs are relevant to all EIS investors:

30% upfront relief: Income tax relief is available at a maximum rate of 30% on EIS investments of up to £1 million in any tax year, with further income tax relief being available on investments of up to an additional £1 million in any tax year in respect of knowledge-intensive companies. 30% of the amount invested can be claimed back against income tax
No capital gains tax paid on growth: EIS companies have the potential to grow significantly in value, sometimes to multiples of the initial amount invested. This growth is returned tax-free, which can represent a material benefit.
Relief on losses: when an EIS company fails, the realised loss (net of any 30% income tax relief retained) can potentially be offset against income (as opposed to ‘normal’ losses arising on shares which are usually only available to offset against other capital gains). This is a really important part of how the risk of investing in EIS companies is mitigated, and for additional rate tax payers can be worth an extra 31.5% of tax relief in addition to the 30% upfront income tax relief claimed.

Additional benefits that can be relevant to some investors, depending on personal circumstances:

1. Income Tax Relief

Subject to the annual maximum, income tax relief is potentially available at a maximum rate of 30% on EIS investments. Investing in EIS-qualifying shares entitles the investor to a 30% reduction in their income tax bill. So a £100,000 investment entitles the investor to a £30,000 saving on their income tax bill.

EIS reliefs are claimed on an investment-by-investment basis with the relevant dates being the date that the shares in the EIS company are actually issued, as opposed to the date of subscription to the Fund;
The value of relief is 30% of the amount subscribed for shares in EIS companies no matter the effective rate of tax paid. But investors do need to have a sufficient income tax liability to cover the relief – it cannot create a negative tax liability;
30% income tax relief is available on EIS investments of up to £1 million in any tax year with further income tax relief being available on investments of up to an additional £1 million in any tax year in respect of ‘knowledge-intensive companies’.
Subject to the annual maximum, it may be possible for part or all of this tax relief to be carried back to the previous tax year;
EIS shares must be held for a minimum period, of at least three years. If sold or otherwise disposed of during this period, some or all of the income tax claimed will be withdrawn and the shares may then be subject to capital gains tax. The same applies if a company ceases to qualify within three years. If an EIS company goes into administration within three years, income tax claimed should not normally need to be repaid (to the extent that there are no proceeds).

To understand how to claim income tax relief, please read HMRC’s guide to claiming income tax relief for EIS qualifying investments

2. Capital Gains Tax (CGT) free growth

As a UK taxpayer, when an investor sells shares at a profit, capital gains tax is usually payable at their marginal rate after deduction of the capital gains tax ‘annual exemption’. Depending on their personal circumstances, this can be either 18% or 24%. Shares that qualify for EIS relief (and where EIS income tax relief has been claimed and not withdrawn) do not attract CGT; therefore, on a profitable exit, no CGT needs to be paid from the proceeds received. This is sometimes referred to as Disposal Relief. For very successful companies that grow to be worth many multiples of the amount invested, this can be a significant benefit.

To qualify for this relief, shares have to have been held for a minimum of 3 years prior to sale, and must have met the qualifying conditions during this time. As mentioned above, Income Tax relief must also have been claimed in respect of the investment.

For more in-depth information, refer to HMRC’s guide to CGT free growth (called disposal relief here) for EIS qualifying investments.

3. Loss relief

If an investor’s shares are sold at a loss following the failure or disposal of a company, the loss may be offset against their tax liability. A loss arises when the disposal proceeds are less than the investment’s ‘effective cost’, the amount originally invested, less any EIS income tax relief claimed. For example, if an investor subscribes £10,000 and claims £3,000 of income tax relief, the effective cost is £7,000; a loss therefore arises if the shares are sold for less than this amount.

The amount of loss one can claim will be the difference between their effective cost and the proceeds they receive. Alternatively, a company may fall to £nil value, which can entitle a ‘negligible value’ loss claim to be made.

Investors can choose whether to claim the effective loss against capital gains, or income tax. It is often beneficial to claim against income tax, and they can do so in respect of the year the loss has arisen, or the previous year.

An additional-rate taxpayer that offsets the loss on a company that falls in value to £0 could benefit from an extra 31.5% tax relief. In total, the initial 30% income tax relief plus the additional loss relief could effectively reduce a net loss per £1 invested to 38.5p.

Alternatively, investors can claim the loss against any capital gains tax bill for the current year, or future years on a roll-forward basis.

4. Inheritance Tax Relief

As announced in the 2024 Budget and as updated on 23 December 2025, shares in EIS qualifying companies also qualify for Business Property Relief, sometimes called Business Relief. From April 2026, it is proposed that individuals will have a £2.5 million Business Relief allowance, enabling them to leave qualifying assets (including unlisted EIS shares) worth up to £2.5m completely free from IHT when they die. To qualify for this relief, shares must have been held for at least 2 years when the investor passes away (assuming the shares aren’t ‘replacement business property’, in which case the shares should be free from IHT from the date of investment).

If shares (or other qualifying assets) are worth more than £2.5 million are held at death, the excess value benefits from 50% relief from inheritance tax. As inheritance tax is typically charged at 40% of the value of the estate in excess of the nil rate bands, this can save the estate 40% (20% for assets above £1 million).

It is also proposed that shares listed on the Alternative Investment Market (AIM) and other junior markets which are not designated as ‘recognised stock exchanges’ such as Aquis, will in all circumstances only obtain relief at 50% rather than the current 100%.

Further understanding:

5. Capital Gains Tax (CGT) deferral relief

If an investor realises a capital gain on the disposal of other assets they own, CGT will typically be payable during the following tax year. However, if capital equivalent to the gain is invested into EIS shares and a relevant claim is made, that gain can be deferred over the life of the EIS investment.

To qualify for deferral relief, it is the value of the gain that needs to be reinvested. This will be a lower amount than the proceeds received on the disposal. For example, if another asset was sold for £100,000 and cost £60,000, the value of the gain is £40,000 – investing £40,000 into EIS qualifying shares in the relevant window could defer the CGT payable on this gain.

To defer the tax due on a disposal, the investment into EIS-qualifying shares needs to be within three years of the disposal giving rise to the capital gain. Alternatively, an EIS investment can be made up to 12 months prior to the disposal giving rise to the capital gain.

The gain will be deferred until the earliest of the following:

The EIS shares are sold
The company stops being EIS-qualifying within three years of investment
The investor stops being a UK resident within three years of investment

When the deferred gain comes back into charge, capital gains tax will be payable on it at the relevant rate at that time. A gain can be deferred again if it’s reinvested into a new EIS-qualifying investment.

If the investor dies before the gain returns to charge, it will be eliminated.

Unlike the limits for claiming EIS income tax relief, there’s no maximum value limiting the amount of gains that can be deferred in this way.

Understand how to claim CGT Deferral Relief

If you would like to read HMRC’s guide to deferring gains released elsewhere through investment in EIS qualifying shares, please c lick here (you’ll need to scroll down as the first half covers EIS disposal relief).

The amount and timing of these reliefs will depend on the individual circumstances of each investor and may be subject to change in the future. Investors are strongly recommended to seek independent professional advice on the tax consequences of acquiring, holding and disposing of shares in EIS companies.

How to Claim EIS Tax Reliefs

When someone invests in EIS companies, they can claim up to 30% of the amount subscribed as income tax relief. They can apply to claim the relief against their income tax bill of the tax year the shares were issued, or the previous year. (Subject to certain conditions being met, for a Knowledge Intensive Fund, income tax relief is based on the date the Fund closes. All other reliefs are based on the date that the EIS shares are issued by each EIS company).

Investors need to have received a tax certificate in respect of their investment in order to make a claim. For single company investments or EIS portfolios, investors will receive an EIS 3 certificate in respect of each company they invest in. For a Knowledge Intensive Fund, they will receive an EIS 5 certificate in respect of their overall investment in the Fund. They should expect to wait some time after investment before receiving these certificates, as the manager will need to make the underlying investments on their behalf, and wait for HMRC to issue the relevant certificates.

Relief	How to claim?	Availability
Income tax relief	Self-assessment or as an ad hoc adjustment to PAYE code	May be utilised in the year of EIS investment or carried back one year
CGT deferral	Annual tax return	Gains incurred up to three years prior and up to one year after EIS investment may be deferred. CGT payable on exit
IHT (business property relief)	N/A	No IHT payable on EIS investments held for a minimum of two years and on death (still counted towards overall value of estate)
Loss relief	Self assessment	May be offset against capital gains in the year of the loss or carried forward, or against income in the year of the loss or the year prior to the loss
CGT-free gains	N/A	No CGT payable on gains on EIS investments held for three years or more

A summary of how to claim EIS relief below:

A: Self Assessment Tax Return

Most investors claim relief as part of their annual self-assessment tax return. It is simple to include details of an EIS investment in the relevant section(s)

In the “Tailor your return” section, there is a question asking about other tax reliefs – investors should answer “yes”, which will create the page needed to include details of their EIS investments.
In this “other tax relief and deductions” section, investors can enter the total amount of all EIS subscriptions for which they want to claim relief in that tax year. The required details can be found in the EIS certificate(s).
Provide investment specifics: Use the “Any other information” box in the final section of the tax return (box 19 on page TR 7 of the paper form equivalent) to list the UIR, company name, amount claimed, and date of issue for each investment.

B: Submit a claim using a certificate

Another way to claim relief is to complete the claim form included with the EIS 3 or EIS 5 certificates and send it to the HMRC tax office. This route can be useful if:

The investor usually pays all of their tax via PAYE. This can reduce their monthly tax deductions for the year by changing their tax code.
If they want to claim Capital Gains Tax deferral relief as well as income tax relief
If they want to claim the tax relief against a previous year

Deadlines to claim income tax relief

Income tax relief must be claimed within five years from the 31 January following the tax year of investment in each underlying company (for an EIS Fund) or Fund close date for the Knowledge Intensive Fund.

How to claim Capital Gains Tax Deferral Relief

Investors also need to have received their EIS certificates in order to claim Capital Gains Tax Deferral Relief.

They can select to add a supplementary section called “Capital Gains summary pages”. This section provides the space to detail the gains they would like to claim relief against.

Investors must complete the claim form attached to the EIS3 certificate they should receive from the company they have invested in and attach the form to the Capital Gains Tax summary pages of their tax return.

Deadline

Investors cannot make a claim before they have received the relevant EIS3 certificate. The latest date for making a claim is 5 years after the first 31 January following the end of the tax year in which the EIS qualifying shares were issued.

How to claim Capital Gains free growth (“Disposal Relief”)

Subject to EIS income tax relief being claimed and not withdrawn, qualifying gains are automatically exempt from Capital Gains Tax. However, even if the gain is exempt, investors still need to report the disposal on their Capital Gains Tax summary pages if certain thresholds are met in the tax year. They must report the disposal if the total value of all assets sold, including the EIS shares, was over £50,000, or if the total chargeable gains (after deductions) exceeded the annual exempt amount (£3,000 for 2025-26).

The above is not tax advice. Please read HMRC’s information about how to claim relief.

Qualifying Criteria for EIS Relief

To claim, both the investor and the company must meet specific criteria:

Headline Investor Requirements:

Be an individual taxpayer in the UK
Not be connected to the company (with some limited exceptions)
Invest in qualifying shares that are newly issued
Hold the shares for a minimum of three years

If you would like to read more from HMRC, please click here.

Headline Company Requirements:

Be an unquoted trading company
Have fewer than 250 employees
Gross assets must not exceed £15 million
Must be carrying out a qualifying trade
Must not be more than 7 years old

Recent UK Budget changes (effective April 2026) significantly increased Enterprise Investment Scheme (EIS) limits for companies, raising the annual investment limit to £10m (£20m for Knowledge Intensive Companies – KICs), doubling the lifetime limit to £24m (£40m for KICs), and increasing the gross assets threshold to £30m (£35m after share issue).

These requirements ensure that EIS qualifying investments are channelled towards those companies in the early years of their business, where capital can be harder to raise, and where growth and outcomes are far less certain, but can be very exciting.

If you would like to read more from HMRC, please click here.

When and how to claim loss relief

If a company is sold for a loss, or falls to be worthless, investors should be entitled to claim loss relief.

When: There are three times when loss relief can become relevant:

1. Company sold at a loss

If the company is sold more than three years after investment while still qualifying for relief, loss relief should be available. The amount of the loss takes into account the benefit of initial income tax claimed.

If the company is sold within three years, loss relief is still available, but income tax relief previously claimed will need to be repaid (and will not be relevant when calculating the extent of the loss) to the extent proceeds are received.

2. The company is shut down

If a company is voluntarily wound up for commercial reasons, loss relief should be available. This applies even if the company is wound up within three years of investment.

3. The company becomes worthless

If a company becomes worth nothing or very close to nothing, but is not wound up, no disposal has occurred. However, a loss relief claim may be able to be made if it is of “negligible value”. If you would like to understand more about this, please click here.

Loss relief and EIS portfolios

If someone invests in EIS shares through a managed portfolio or fund, they will hold multiple companies in one portfolio. For loss relief purposes, each company is a separate investment. This means that if any of the companies in the portfolio are sold at a loss, loss relief can be claimed. It doesn’t matter if the overall portfolio’s value is more than the amount invested.

How to claim

If the investor completes a self-assessment tax return, they can claim EIS losses against either income tax or capital gains tax by completing the relevant part of the SA108 form.

Loss relief claimed through self-assessment may reduce the amount of tax one needs to pay for the relevant tax year. This can also be claimed retrospectively, so if too much income tax has been paid HMRC may issue a refund for the excess.

Time limits for making a claim

Income tax: one year from the 31 January after the tax year in which the loss was made.
Capital gains tax: four years after the end of the tax year in which the loss was made.