Help smaller companies grow and receive valuable tax reliefs
Britain has a rich, centuries-long history of innovation. Fast-growing young companies contribute £1 trillion to our economy and employ 3.2 million people: they are the country’s growth engine, the lifeblood of the economy.
Vital to this is the support of private investors, often backed by the government through its Venture Capital Schemes: Venture Capital Trusts (VCTs), and the Enterprise and Seed Enterprise Investment Schemes (EIS and SEIS).
These schemes were set up to encourage investment in young and dynamic British enterprise. The long-term reward for doing so is the potential to back a winner if things work out. The short-term reward for experienced investors is the significant tax reliefs the government offers in exchange for supporting high-risk younger businesses.
Tax rules can change and benefits depend on circumstances. This is a brief outline based on current rules: there are detailed conditions and rules you should consider carefully before investing. If unsure, seek advice. These are high-risk investments and you should invest on the merits of the investment, not for the tax advantages alone.
Venture Capital Trusts (VCTs)
A Venture Capital Trust (VCT) is in many ways similar to an investment trust. It is a company listed on the London Stock Exchange that raises money and uses it to invest in young, innovative and often privately-owned companies.
When you invest, you could receive:
- Up to 30% tax relief – save up to £60,000 on your income tax bill when you invest in newly issued VCT shares
- Generous allowance – invest up to £200,000 per tax year
- Tax-free dividends – no need to declare VCT dividends on your tax return
- Tax-free growth – no CGT on gains
Enterprise Investment Scheme (EIS)
The EIS (Enterprise Investment Scheme) incentivises investment in small and usually privately owned or AIM-quoted companies. You can invest directly in individual companies or in an EIS fund, where the fund manager makes the investment decisions.
When you invest, you could receive:
- Up to 30% income tax relief – up to £3,000 saving on a £10,000 investment either against this tax year's bill or carry back to the previous tax year
- 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 of IHT
Seed Enterprise Investment Scheme (SEIS)
The Seed Enterprise Investment Scheme (SEIS) is designed to complement the EIS. SEIS companies are even smaller and younger than EIS ones, hence riskier. Accordingly, SEIS tax reliefs are more generous.
When you invest, you could receive:
- Up to 50% income tax relief – up to £5,000 saving on a £10,000 investment either against this tax year's bill or carry back to the previous tax year
- Generous allowance – £200,000 per tax year
- Tax-free growth
- Up to 50% capital gains reinvestment relief – halve the CGT due on gains from elsewhere
- Loss relief – offset any future losses against your income
- Inheritance tax relief – potentially pass on your investment free of IHT
AIM IHT ISAs
AIM IHT ISAs or AIM Inheritance Tax ISAs are portfolios of AIM-quoted shares that should benefit from IHT relief, designed to be held in an ISA. Unlike conventional Stocks & Shares ISAs, AIM IHT ISAs can benefit from IHT relief, provided you hold the investment for at least two years and on death and the shares remain qualifying.
- Free from CGT and UK income tax in your lifetime
- Keep control of your portfolio – take cash out if you need
- Benefit from IHT relief after two years
What are the main differences between VCTs, EIS and SEIS?
Despite investing in broadly similar types of companies, there are significant differences between VCTs, EIS and SEIS.
Firstly, the tax reliefs and allowances. Secondly, the structure.
When you invest in a VCT, you acquire shares in the trust, not in the underlying companies. So, with one VCT share you gain exposure to all the companies in the VCT portfolio. Moreover, theoretically, you could sell your shares any time and realise your investment, although there may be restrictions.
When you invest in an EIS or SEIS fund, you acquire shares in the underlying companies. As those are not typically listed, you cannot usually sell your shares on the stock market. You can only realise your investment when there is an exit, i.e. the company is sold, listed on a stock market or refinanced. EIS/SEIS funds will typically be less diversified than a VCT, as fewer companies are held.
How do VCT, EIS and SEIS tax reliefs compare at a glance?
| VCT | EIS | SEIS | |
|---|---|---|---|
| Maximum investment per tax year | £200,000 | £2,000,000* | £200,000 |
| Carry back | no | available | available |
| Income tax relief | up to 30% | up to 30% | up to 50% |
| CGT relief/deferral | no | deferral | up to 50% |
| Tax-free dividends | yes | no | no |
| Tax-free growth | yes | yes | yes |
| IHT relief** | no | yes | yes |
| Loss relief | no | yes | yes |
* Provided anything over £1 million is invested in Knowledge Intensive companies.
** From 6 April 2026 100% IHT relief on EIS and SEIS 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%).
Tax rules can change and benefits depend on circumstances. This is a brief outline based on current rules: there are detailed conditions and rules you should consider carefully before investing. If unsure, seek advice. These are high-risk investments and you should invest on the merits of the investment, not for the tax advantages alone.
Discover more
Our free guides and factsheets give you the main facts in plain English.
