EIS tax reliefs at a glance

Investing in young companies can be rewarding but is also risky. Some of these companies might do very well, but inevitably others will struggle and some will fail.

The tax incentives the government offers under the Enterprise Investment Scheme (EIS) provide a valuable buffer against this risk. They mitigate the impact of investments that don’t work out and amplify the impact of investments that do well.

• Up to 30% income tax relief – up to £3,000 saving on a £10,000 investment
• Very generous allowance – up to £1 million per tax year (or £2 million if at least £1 million is in knowledge-intensive companies)
• Tax-free growth
• Capital gains deferral – defer capital gains from other investments, potentially indefinitely
• Loss relief – offset any future losses against your income
• Inheritance tax relief – potentially pass on your investment free from IHT

A £100,000 investment could provide a £30,000 saving on your income tax bill for the tax year when your capital is deployed.

To claim the relief, you must have sufficient income tax liability in the first place. You must then hold the shares for at least three years.

You can invest up to £1 million (or potentially up to £2 million if at least £1 million is invested in knowledge-intensive companies – giving you potentially up to £600,000 in income tax relief).

Carry back

Assuming you have the allowance, you could ‘carry back’ – offset the tax relief against the previous year’s tax bill, and potentially get back tax you’ve already paid.

You normally pay no Capital Gains Tax (CGT) when realising EIS shares, if you have claimed income tax relief on them and the companies still qualify. This is known as ‘EIS disposal relief’.

If you have realised a taxable gain (e.g. by selling investments or a second home) and invest that gain in an EIS-qualifying investment, you can defer the capital gain for as long as the money stays invested and the EIS conditions are not breached.

You can defer gains of any size, made up to three years before and one year after the EIS investment. You can defer all or part of the gain and can do it even if you have already paid the tax. Once you get your money out, the gain comes back into charge and you pay CGT at the prevailing rate. Alternatively, you could invest into another EIS and continue to defer the gain.

If things don’t go to plan, you can choose to offset any loss, less the income tax relief received, against your income tax bill. So, an additional-rate taxpayer could effectively reduce a total loss of £1 to 38.5p. Read more on how EIS loss relief works.

Under current rules, an investment in an EIS-qualifying company should benefit from 100% relief from inheritance tax, provided the investment is held for two years and at the time of death.

From 6 April 2026 100% IHT relief on EIS private companies will be limited to the first £1 million of qualifying assets (including private companies and agricultural property), with the remainder eligible for 50% IHT relief (an effective IHT rate of 20%). Any qualifying S/EIS companies quoted on AIM will be eligible for 50% IHT relief (an effective IHT rate of 20%).

When you invest £100,000 in an EIS, because of the income tax relief of up to 30%, the effective net cost could be as little as £70,000. The table below gives examples of how that – and loss relief – might affect your returns whether your investment does well or badly.

Loss relief allows you to write off any losses against income tax. So, if your investment falls to zero you could in effect deduct the £70,000 loss from your taxable income. This gives a potential tax saving of £31,500 for a top-rate taxpayer and means the maximum effective loss could be as little as £38,500 (effective cost of £70,000 less loss relief of £31,500). Meanwhile, if your investment grew by 50%, thanks to the tax relief, you could be looking at an effective gain of 80%.