UK SEIS & EIS 2026/27: 30% / 50% Relief, CGT Exemption, Loss Relief

QWhat is the difference between SEIS and EIS?

SEIS (Seed Enterprise Investment Scheme) and EIS (Enterprise Investment Scheme) are UK tax-relief schemes designed to encourage equity investment in early-stage and growth-stage trading companies. The main differences. (1) Stage: SEIS targets very early-stage companies (within 3 years of trade commencement, under £350,000 gross assets at the time of investment); EIS targets growth-stage companies (within 7 years of trade commencement, 10 years for Knowledge-Intensive Companies). (2) Income Tax relief: SEIS 50% vs EIS 30%. (3) Investor annual limit: SEIS £200,000 (raised from £100,000 on 6 April 2023) vs EIS £1,000,000 (£2,000,000 for KICs from same date). (4) Company lifetime funding cap: SEIS £250,000 vs EIS £12m (£20m for KICs). Many UK startups raise SEIS first (smaller rounds, very early stage) and EIS later (larger rounds, growth stage); the two schemes are designed to chain.

QWhat Income Tax relief do I get and how is it claimed?

EIS gives 30% Income Tax relief on the gross investment up to £1,000,000 a year (£2m for KICs). SEIS gives 50% relief on up to £200,000 a year. Relief is delivered as an Income Tax credit on the subscriber Self Assessment return (the actual tax liability for the year is reduced by the relief amount), or in some cases as an in-year PAYE coding adjustment. Relief cannot exceed the subscriber actual Income Tax liability for the year - so a subscriber with £40,000 of Income Tax liability subscribing for £200,000 of SEIS shares receives only £40,000 of relief, not the headline £100,000 (50% × £200k). The remaining relief CAN be carried back to the prior tax year via a carry-back election, provided the prior-year IT liability covers it. Claim is made on the Self Assessment return for the year of subscription using HMRC EIS3 / SEIS3 compliance certificates issued by the company.

QHow does the 3-year hold rule work?

For both EIS and SEIS, the subscriber must hold the shares for at least 3 years from the date of issue (or 3 years from commencement of the company trade if later) to retain the Income Tax relief. Selling, gifting (other than to a spouse), or otherwise disposing of the shares before the 3-year point triggers full withdrawal of the IT relief - HMRC will issue a clawback assessment at the original relief rate (30% EIS / 50% SEIS) on the disposal value. The CGT exemption on disposal (the gain on the shares being entirely free of CGT) also requires the 3-year hold. Death of the subscriber before the 3-year point does NOT trigger clawback - the relief is retained on death. The company must also continue to be qualifying for the 3-year period - if the company ceases to be qualifying (e.g. it pivots away from the qualifying trade) the IT relief is similarly withdrawn.

QWhat is the CGT exemption and the EIS deferral relief?

Two separate CGT reliefs are available on EIS/SEIS investments. (1) CGT exemption on disposal: provided the subscriber held the shares for 3 years and claimed (and did not withdraw) IT relief, any gain on the EIS/SEIS shares is fully exempt from CGT. This is among the most generous CGT reliefs in UK personal tax and is the single largest source of after-tax return for successful investments. (2) EIS deferral relief: any UK chargeable gain (e.g. from selling property, listed shares, business assets) can be deferred indefinitely by reinvesting the gain into EIS shares within 1 year before to 3 years after the original disposal. The deferred gain crystallises when the EIS shares are eventually disposed of. The deferral works as a tax-payment timing benefit rather than a permanent exemption. SEIS has a parallel but more limited "SEIS reinvestment relief" that permanently exempts 50% of a reinvested gain (up to £200,000 of gain reinvested) provided the SEIS shares qualify - this is permanent not deferred.

QWhat is the loss relief mechanism on a failed investment?

If the EIS/SEIS shares become worthless (the company fails) the subscriber can claim loss relief at their marginal Income Tax or CGT rate on the net cost of the investment (gross investment minus the IT relief already claimed). Example: a higher-rate taxpayer subscribes £30,000 of EIS, claims £9,000 IT relief, net cost £21,000. If the company fails: loss relief = £21,000 × 40% IT rate = £8,400 further tax saved. Net economic loss: £30,000 - £9,000 - £8,400 = £12,600 on the £30,000 nominal investment. Total downside is reduced to 42% of nominal vs 70% under standard equity. For additional-rate taxpayers the loss relief is at 45%, reducing net downside further. The loss relief can be set against IT in the year of failure or carried back to the previous year, OR claimed against CGT gains in the year of failure or carried forward. SEIS loss relief works identically but with the 50% IT relief and net cost = 50% of gross.

QWhat companies qualify for EIS / SEIS?

Qualifying trading company tests under ITA 2007 Part 5 (EIS) and Part 5A (SEIS). Key tests: (1) UK permanent establishment with qualifying trade - excluded activities include dealing in land, dealing in shares, banking, insurance, money lending, hire-purchase financing, leasing, receiving royalties, legal/accounting/property/farming services, hotel/nursing-home operation, generating electricity (with narrow renewable carve-outs). (2) Independent ownership - the company must not be a 51% subsidiary of another company. (3) Gross assets test - SEIS: under £350,000 immediately before the issue. EIS: under £15m before issue, under £16m after issue. (4) Employee test - SEIS: under 25 full-time-equivalent employees. EIS: under 250 FTE (under 500 FTE for KICs). (5) Age - SEIS: company within 3 years of trade commencement. EIS: 7 years (10 for KICs). (6) Funding cap - SEIS lifetime £250,000. EIS lifetime £5m / year, £12m total (£20m for KICs). (7) Money raised must be employed for the qualifying trade within 2 years (3 years for SEIS).

QWhat is a Knowledge-Intensive Company (KIC)?

A Knowledge-Intensive Company is an EIS-qualifying company that meets additional R&D or innovation criteria, qualifying for the enhanced EIS limits. KIC tests under ITA 2007 section 252A: (1) at least 15% of operating costs in any one of the 3 years before investment were R&D / innovation expenditure, OR at least 10% of operating costs across each of the 3 prior years were R&D / innovation. (2) Either the company is "engaged in the creation of intellectual property" and the IP is intended to constitute the company main income source, OR at least 20% of full-time employees are "skilled employees" (specific definitions around qualifications). KIC status delivers: increased subscriber annual limit (£2m vs £1m), extended company age limit (10 years vs 7), extended company employee limit (500 vs 250), and extended company funding cap (£20m vs £12m). KIC designation is particularly valuable for biotech, pharma, deep-tech and AI startups where time-to-commercialisation is long and R&D spend is high.

QHow do I make a SEIS or EIS investment?

Three routes commonly used. (1) Direct investment in a single company - subscribe for shares directly under an EIS/SEIS-compliant share offer. The company must have received Advance Assurance (HMRC pre-approval that the company qualifies) - typically the EIS3 / SEIS3 certificates are issued to investors 4-6 months after share issue, then investors claim the relief on Self Assessment. (2) EIS/SEIS fund - subscribe to a managed fund (Octopus, Triple Point, Albion, Mercia, Calculus, others) that invests across a portfolio of qualifying companies. Diversifies risk vs single-company. Fund fees typically 1.5%-2.5% annual management + 20% performance fee above hurdle. (3) Approved EIS Knowledge-Intensive Fund - structurally similar to (2) but with specific HMRC-approved fund status that gives investors more flexibility on the carry-back of relief. The fund route is the more common choice for retail investors; direct investment is more common for angel investors backing specific founders.

QHow does IHT Business Relief apply to EIS / SEIS shares?

EIS and SEIS shares qualify for 100% Business Relief from Inheritance Tax once held for at least 2 years (the standard BR 2-year holding period). The shares must still be held at the date of death and the company must still be a qualifying trading company at that point. Business Relief on unquoted trading company shares is one of the more durable IHT shelters in the UK code. Important: the Autumn Budget 2024 announced a £1 million combined cap on BR and APR at the 100% rate from 6 April 2026 - shares above that cap will only attract 50% relief (effective 20% IHT rate on the excess). This means EIS/SEIS portfolios above the £1m cap (combined with any other BR/APR-eligible assets such as private trading company shares or agricultural property) face the new reduced rate from 2026. See our BPR/APR April 2026 changes guide for the full structural detail.

QWhat are the risks of EIS / SEIS investments?

EIS and SEIS investments are HIGH-RISK by nature - they target early-stage companies that have a substantial probability of total loss. UK angel-investment data suggests roughly 40% to 60% of SEIS-stage investments result in total loss, with successful investments contributing returns sufficient to offset failures across a diversified portfolio. The risk is recognised by the EIS/SEIS framework itself - the loss-relief mechanism specifically reduces the effective downside on failure to around 42% of nominal for higher-rate taxpayers and 38% for additional-rate. The risks beyond business failure include: (1) Company ceases to qualify mid-period (HMRC clawback of IT relief); (2) Disposal before 3-year clock expiry (full clawback); (3) Liquidity - EIS/SEIS shares are unquoted and typically illiquid until an exit event; (4) Valuation - mid-cycle valuations are notional and may not reflect realisable value; (5) Fund manager quality - in the fund route, performance varies substantially between managers. FCA-regulated investment advice required for any retail investor below the £100,000 net worth or £200,000+ annual income High-Net-Worth Individual / Self-Certified Sophisticated Investor exemption thresholds.

QWhat is the carry-back election?

EIS and SEIS Income Tax relief can be claimed in either the tax year of subscription or carried back to the immediately preceding tax year, subject to the prior-year annual subscription limit being available. The carry-back election is made on the Self Assessment return for the year of subscription. For an EIS subscription in 2026/27, an investor can elect to treat the relief as relating to 2025/26 - useful when the prior year had higher Income Tax liability (e.g. a one-off bonus, large capital gain, or property sale that pushed income above the additional-rate band). The election does not extend to two years back - only one year. SEIS works identically. The election applies to the full subscription or to a designated portion, not in a sliding scale. For maximum efficiency: structure subscriptions in the year where the prior-year IT liability is highest, allowing full carry-back to absorb the relief at the highest available marginal rate.

QHow does after-tax return compare with a regular investment?

Worked example. A higher-rate taxpayer invests £30,000 in EIS shares. Income Tax relief reduces net cost to £21,000 (30% relief = £9,000). After a 5-year hold, the shares are sold for £90,000 (3x exit multiple). The full £60,000 gain is CGT-exempt under EIS, saving roughly £12,000 of CGT vs the same gain on non-EIS shares (£60,000 × 20% effective higher-rate CGT on shares). Total economic outcome: invested £21,000 net, received £90,000, profit £69,000 - an approximate IRR of 33.8% per year. The IT relief alone takes the breakeven exit multiple down to ~0.7x (the investment is in profit at 70% of original value), making the downside scenario substantially more tolerable than for non-EIS equity. The CGT exemption is the biggest source of upside in successful exits.