The Enterprise Investment Scheme (EIS) is a UK government programme that encourages investment in growing businesses by offering tax reliefs to individuals who purchase new shares in qualifying companies. Administered by HMRC, EIS is one of the most widely used equity financing tools in the UK.
EIS is the larger counterpart to the Seed Enterprise Investment Scheme (SEIS), which targets the earliest-stage companies with higher tax relief rates but lower investment limits.
How EIS Works
A qualifying company issues new ordinary shares to individual investors. In return, the investors receive a package of tax reliefs from HMRC. The company applies for compliance certificates and issues EIS3 forms to investors, who then claim the reliefs through their self-assessment tax returns.
Tax Reliefs for Investors
| Relief | Detail |
|---|---|
| Income Tax relief | 30% of the amount invested, up to £1 million per tax year (£2 million if the excess is in knowledge-intensive companies) |
| CGT exemption | Gains on EIS shares held for 3+ years are tax-free |
| CGT deferral | Capital gains from other assets can be deferred by reinvesting into EIS shares |
| Loss relief | If the investment fails, losses (net of Income Tax relief) can be offset against income or capital gains |
| Inheritance Tax relief | EIS shares qualify for Business Relief after 2 years (100% IHT exemption) |
Example
An investor puts £500,000 into EIS-qualifying shares:
- Income Tax relief: £150,000 (30% of £500,000) — reducing the effective cost to £350,000
- If the investor also defers a £500,000 capital gain from selling another asset, the Capital Gains Tax on that gain is postponed until the EIS shares are sold
- If the EIS shares are held for 3+ years and sold at a profit, the gain is entirely tax-free
- If the company fails, loss relief is available on the net cost after Income Tax relief
CGT Deferral
One of the most powerful EIS reliefs is Capital Gains Tax deferral. An investor who has realised a gain on any asset can defer the tax by reinvesting some or all of the gain into EIS shares. The deferral lasts until the EIS shares are disposed of, at which point the original gain becomes taxable again — unless the investor reinvests into further EIS shares.
There is no upper limit on the amount of gains that can be deferred through EIS.
Limits and Conditions for Investors
- Maximum investment qualifying for Income Tax relief: £1 million per tax year (or £2 million if the amount above £1 million is invested in knowledge-intensive companies)
- Shares must be held for at least 3 years
- The investor must not be connected to the company — meaning they cannot hold more than 30% of the company’s shares, voting rights, or assets on a winding up
- The investor cannot be a paid employee or paid director of the company (unpaid directors may qualify)
- Carry-back is available to the previous tax year
Qualifying Company Rules
Company Requirements
- Must have a UK permanent establishment
- Must have been trading for fewer than 7 years from the date of first commercial sale (or 10 years for knowledge-intensive companies)
- Gross assets must stay within the EIS limits immediately before and after the share issue
- Must have fewer than 250 full-time equivalent employees
- Fundraising limits: an annual and a lifetime cap on money raised through EIS and the other venture capital schemes combined, with higher caps for knowledge-intensive companies
The company limits were raised substantially from 6 April 2026. HMRC publishes the current gross assets and fundraising limits in its EIS guidance, so check them before planning a round.
- Must not be listed on a recognised stock exchange (AIM-listed companies can qualify)
- Must be independent — not controlled by another company
Knowledge-Intensive Companies
Companies that meet the knowledge-intensive criteria benefit from higher limits. To qualify, a company must meet either:
- Spending condition: At least 15% of operating costs on research and development (R&D) in one of the 3 preceding years, or 10% in each of the 3 preceding years
- Innovation condition: Creating intellectual property and the company’s main business is based on that IP
Knowledge-intensive companies have higher annual and lifetime fundraising caps under the venture capital schemes, and investors can claim relief on up to £2 million per year.
Excluded Trades
The same trades excluded from SEIS are also excluded from EIS, including:
- Property development and land dealing
- Financial services and insurance
- Legal and accountancy services
- Farming and market gardening
- Hotels, nursing homes, and residential care
- Energy generation (with exceptions)
- Leasing activities
The EIS Process for Companies
- Confirm eligibility — Check the company and its trade against all EIS requirements
- Apply for advance assurance (optional) — HMRC confirms the company should qualify before shares are issued
- Issue shares to investors and register the allotment at Companies House
- Submit form EIS1 to HMRC within the required timeframe after shares are issued
- Receive and distribute EIS3 certificates to investors for their tax returns
Advance assurance is not mandatory but is strongly recommended, particularly for angel investment rounds where investors want certainty before committing funds.
Impact on the Company’s Accounts
EIS funding is equity, not debt. On the balance sheet:
- The nominal value of shares issued appears in share capital
- Any premium paid above nominal value goes to share premium reserve
- There are no interest payments or scheduled repayments, unlike a business loan
The trade-off is dilution of the founders’ ownership. Each EIS round creates new shares, reducing the percentage held by existing shareholders.
EIS vs Other Funding Options
| Feature | EIS | SEIS | Venture Capital | Business Loan |
|---|---|---|---|---|
| Max investor relief | £1m-£2m per year | £200,000 per year | No tax relief | No tax relief |
| Income Tax relief rate | 30% | 50% | None | None |
| Equity dilution | Yes | Yes | Yes | No |
| Repayment required | No | No | No (but exit expected) | Yes |
| Company age limit | 7 years (10 KIC) | 3 years | None | None |
| Fundraising limit | £12m (£20m KIC) | £250,000 | None | None |
For early-stage companies, using SEIS first (up to £250,000) and then progressing to EIS is a common strategy.
Common Compliance Issues
- Connected investor — If an investor acquires more than 30% of the company, all their EIS relief is at risk
- Receiving value — The company must not provide the investor with any benefit beyond normal dividends (e.g. loans, discounted services, or guarantees)
- Disqualifying arrangements — Pre-arranged exits, buyback commitments, or guaranteed returns can disqualify the entire investment
- 3-year holding period — Disposing of shares within 3 years triggers clawback of Income Tax relief and loss of CGT exemption
- Trade ceasing — If the company stops its qualifying trade within 3 years, reliefs may be withdrawn
Keeping detailed accounting records and working with an EIS-experienced adviser reduces the risk of compliance failures.
EIS Funds
Rather than investing directly into a single company, some investors use EIS funds managed by professional fund managers. These funds pool money from multiple investors and spread it across a portfolio of EIS-qualifying companies. Benefits include:
- Diversification — Reduces the risk of any single company failing
- Professional management — Fund managers conduct due diligence and manage the portfolio
- Convenience — The fund handles all HMRC paperwork
The downside is management fees (typically 1% to 2% per year) and less control over which companies receive the investment.
Claiming EIS Relief
Investors claim EIS relief by:
- Receiving the EIS3 certificate from the company
- Including the details on their self-assessment tax return
- HMRC processes the claim and adjusts the tax liability or issues a refund
Relief can also be claimed by writing to HMRC directly if the self-assessment deadline has passed but the claim is within the time limit.